ATTACHMENT

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Testimony of

GENE KIMMELMAN

Co-DirectorWashington OfficeConsumers Union

Before the

Senate Committee on Commerce, Science, and Transportation

On

Media Consolidation

July 17, 2001

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Consumers Union1 is concerned that meaningful public policy debate about the need for mediaand communications ownership restrictions has been distorted by ideology and the businessinterests of the commercial players who stand to gain or lose by manipulating this debate. Weurge policymakers to reaffirm the goals of promoting competition, diversity and meetingcommunity needs, and to refocus the ownership debate on the fundamental attributes of thevarious communications and media markets. While the antitrust laws can effectively preventsubstantial reductions in competition, they are not effective tools for dismantling monopolies,promoting competition or preserving other public interest values. We believe that consumers’interests will best be served if the Federal Communications Commission (FCC) is instructed tomaintain previous media ownership rules, until it can demonstrate how the public interest inmore competition, diverse ownership and the needs of local and minority viewpoints can be metby altering or eliminating these rules.

The recent explosion of media and communications technology was expected to deliverconsumers a brave new world of competition across all telecommunications and media markets.There is no doubt that today, consumers have the option of receiving news, information,entertainment from a far greater variety of media – newspapers, radio, television, the Internet –than ever before. Unfortunately, this growth in variety has not been accompanied by acomparable growth of independent, diversely owned competitive communications services andmedia voices.

Rather than the cross-market competition envisioned with the enactment of the 1996Telecommunications Act, virtually every communications and media sector has witnessed anexplosion of consolidation. The study attached as an appendix to this testimony, “MappingMedia Market Structure at the Millennium,” provides the detailed empirical and analyticalanalysis upon which our testimony relies. The two major communications wires into the home,telephone and cable are now controlled by a few super-regional companies that focus theirbusiness on dominating their respective markets rather than challenging each other’s corebusiness. Long distance companies have not been able to crack the local phone companies’stranglehold on consumers, and the satellite companies still cannot compete on price with cablemonopolies. Radio and newspaper chains grow larger, and national broadcast networkscontinue to buy more local broadcast stations. See Appendix at 3-11. And on the Internet,where “the number of potential online channels is infinite,” about one-third of user minutes werecontrolled by cable giant AOL Time Warner last year.2

Has this consolidation opened the door to new competition? Hardly. Contrary to the claims ofthe major players in each communications sector, Internet service providers, national broadcastnetworks, newspaper and radio chains, and cable companies do not compete in a meaningfulway against each other for consumers’ news, information, entertainment and othercommunications needs.

1 Consumers Union is a nonprofit membership organization chartered in 1936 under the laws of the State of NewYork to provide consumers with information, education and counsel about goods, services, health, and personalfinance. Consumers Union's income is solely derived from the sale of Consumer Reports, its other publications andfrom noncommercial contributions, grants and fees. In addition to reports on Consumers Union's own producttesting, Consumer Reports with approximately 4.5 million paid circulation, regularly carries articles on health,product safety, marketplace economics and legislative, judicial and regulatory actions that affect consumer welfare.Consumers Union's publications carry no advertising and receive no commercial support.2 “Online Media Consolidation Offers No Argument for Media Deregulation,” Jupiter Media Metrix, Inc. June 4, 2001.

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A careful market analysis reveals that there are several kinds of media markets (e.g., national v.local, primetime television v. daytime TV, national network news v. all other newsprogramming), which support different business models (e.g., subscription-based v. advertiser-based). These markets are adjacent to each other rather than in competition with each other.See Appendix at 3-11. This is not to say that there is no form of competition or rivalry acrossmedia, but newspapers’ classified advertising cash cow in no way resembles the high-pricedpharmaceutical and auto advertising splashed across national television network primetimeprogramming. These are separate markets that are not yet substitutes for one another. Forexample, the enormous growth of the Internet provides no basis for relaxing the nationaltelevision broadcast ownership cap, given that only about half the country is on the Internet, andthe Internet does not provide a service comparable to broadcast television.

And in moderately or highly concentrated media and communications markets, verticalintegration—the combined ownership of content and distribution channels—can skew incentivesto undermine journalistic independence. For a news program at a station that is independentlyowned and operated, the overriding concern should be credible and professional reporting thatwill bring viewers back. However, when a large media conglomerate gobbles up that samestation, it becomes unlikely that the station will cover its parent aggressively when inevitableconflicts of interest arise. In markets with few direct competitors, this bias is more likely to gounnoticed and unchallenged. See Appendix at 17-19.

Even when it appears that the giants in one media sector are squaring off against the giants inanother, each invoking the consumer’s interest as its sole motivation in battle, often theconsumer is more a hostage than the beneficiary of the warfare. For example, when ABC,backed by its parent, the Walt Disney Company (Disney), squared off against cable monopolyTime Warner over carriage terms for Disney’s programming, consumers faced the followingprospects: either Time Warner would win and consumers would still pay inflated cable rateswithout receiving Disney programming, or Disney would win, and Time Warner could increaseconsumers’ rates in return for carrying Disney programming. And when cable and Internet giantAOL Time Warner sounds like it wants to challenge the national broadcast networks’ dominancein TV news coverage through its popular CNN and Headline News cable channels, analystsbelieve this really means that AOL Time Warner wants to merge or partner with either ABCNews or NBC News.3 The fundamental failure of media and communications policies to develop competitivetransmission/distribution systems has left consumers at the mercy of powerful content andtransmission companies whose most antagonistic, “competitive” behavior consists of fightingwith each other over who gets the larger share of monopoly profits from consumers, and whooften control content delivered to consumers.

As the FCC reviews its national television broadcast ownership cap, and newspaper/broadcastcross-ownership rules, it is critical that the Commission take a careful look at the fundamentallydifferent characteristics of each media and communications market, in determining whatregulations are appropriate to meet Congress’ goal of protecting the public interest. AndConsumers Union believes that it is important for the Commission to preserve critical elementsof previous judicially and Congressionally approved definitions of the “public interest” – promotediversity based on independent ownership designed to expand competition, meet localcommunity needs, and protect the viewing/listening public’s First Amendment rights to hear and 3 Jim Rutenberg, “Mix, Patch, Promote and Lift.” New York Times (July 15, 2001).

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be heard – rather than drifting toward a definition where variety (even if owned and controlled byfew) equals diversity. See Appendix at 19-20.

Past Commission reviews of these ownership rules have involved only cursory analysis of themost critical economic forces at play in media markets and we believe it is time to correct thatflaw. Especially at a time when the D.C. Circuit Court of Appeals can find a way to read an actof Congress (the 1992 Cable Act, Public Law 102-385, which was designed to promote cablecompetition by limiting concentration of ownership) as potentially allowing a single cablecompany to own systems serving as many as 60 percent of all cable customers4, it is obviousthat Congress’ expert communications agency must do a better job in gathering data, analyzingmarket forces, and then demonstrating how congressionally mandated rules address marketdysfunction.

However, we are troubled that the FCC’s current Chairman has characterized the broadcastownership cap as based on “a romantic notion, … an emotional one,”5 that limits “are almostalways poorly calibrated”6 and that “there is something offensive to First Amendment valuesabout that limitation.”7 We certainly hope that Chairman Powell will engage in a thoroughanalysis of the market forces that are affected by this rule and all others, rather than reachconclusions based on past shortcomings in the FCC’s research. And we hope the Chairmanhas not forgotten than the First Amendment protects the public’s free speech rights, not just themore limited right of commercial media enterprises.8 As we point out above, just becausemany media ownership rules are old and markets have changed does not mean that markets,without these rules, can adequately promote diversity of ownership and competition.

Recent research on the economics of radio and newspaper markets raises fundamentalconcerns about whether deregulation of ownership in media markets can produce the kinds ofconsumer benefits and a robust marketplace of ideas, that are usually associated withcompetitive markets.9 For example, data show that people whose tastes in radio programmingdiffers from the largest group of listeners in a community tend to receive less content than theydesire in the marketplace, and that this is likely the case for other media:

A consumer with atypical tastes will face less product variety than one withcommon tastes…. The market delivers fewer products – and less associatedsatisfaction – to these groups simply because they are small. This phenomenoncan arise even if radio firms are rational and entirely non-discriminatory.

The fundamental conditions needed to produce compartmentalized preferenceexternalities are large fixed costs and preferences that differ sharply acrossgroups of consumers. These conditions are likely to hold, to greater or lesserextents, in a variety of media markets – newspapers, magazines, television, andmovies.

4 Time Warner Entertainment v. Federal Communications Commission, No. 94-1035 (D.C. Cir., Mar. 2, 2001).5 Labaton, Steven, “F.C.C.’s Chairman Would Curb Agency, Reach,” New York Times, Feb. 7, 2001.6 Srinivasan, Kalpana, “FCC Chief Wary of Broadcast Rules,” Associated Press, April 25, 2001.7 Id.8 Red Lion Broadcasting Co., Inc., et al v. Federal Communications Commission et al, 395 U.S. 367 (1969).9 Waldfogel, Joel and George, Lisa, “Who benefits Whom in Daily Newspaper Markets?” National Bureau of

Economic Research (2000). Waldfogel, Joel, “Preference Externalities: An Empirical Study of Who BenefitsWhom in Differentiated Product Markets” National Bureau of Economic Research (1999).

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Radio programming preferences differ sharply between blacks and whites,between Hispanics and non-Hispanics and (to a lesser extent) across agegroups.10

These findings indicate that, given the large fixed costs involved in offering media services, thewide variety of tastes in media markets, and the drive to maximize profits through maximumadvertising revenue/audience size, market forces are likely to leave more local tastes under-satisfied by national firms, and more minority tastes under-satisfied even in local markets. SeeAppendix at 19-20. It is therefore necessary for the government to continue regulating – eitherthrough structural constraints like ownership caps, or behavioral requirements like “equal time,”“reasonable access,” or network/affiliate rules – to pursue the public interest goals of meetinglocal community needs and promoting diversity of views in media markets, even wherecompetition exists.

Consumers Union therefore believes the FCC should leave the current national televisionbroadcast ownership cap in place, while it initiates a much more detailed and extensive analysisof market structure than it has in the past. The current cap, which allows a national broadcastcompany to own local television stations that reach as many as 35 percent of the nationaltelevision viewing audience, is already set at a level that often triggers antitrust scrutiny over theability to control programming decisions in the marketplace. See Appendix at 16-17. With fournational television networks already dominating primetime television viewing and the massiveadvertising dollars that come with it, there is a substantial danger that further ownership of localstations would lead to increased pressure on local stations to carry nationally-orientedprogramming which maximizes national advertising revenue, at the expense of locally-orientedprogramming. And the fact that the national television networks, no longer constrained by limitson vertical integration (the financial interest and syndication rules), have a financial incentive tofavor programming they produce and syndicate is likely to increase pressure on local stations tocarry network owned rather than locally popular programming. Certainly the local networkaffiliates – who may also be doing less than they should to meet community needs – arecomplaining about an excessive national profit orientation by the networks at the expense oflocal programming needs.11

Consumers Union urges the FCC, as part of its review of the broadcast ownership cap, toinitiate an investigation which answers the following critical questions:

1. Since the national television broadcast ownership cap was raised from 25 to 35 percent,how much has local programming designed to meet community needs suffered?

2. How much has elimination of the financial interest and syndication rules affected localstation’s ability to preempt network programming to show programs that reflect communitytastes?

3. How much does l, as opposed to theoretical, enforcement of the Commission’snetwork/affiliate rules protect local broadcasters from unfair leveraging by the nationalbroadcast networks?

4. Are these rules adequate, without a national ownership cap, to prevent unfair leveraging?

10Waldfogel, “Preference Externalities” at 27-30.11 Network Affiliated Stations Alliance, “Petition for Inquiry into Network Practices.” (Federal Communications

Commission, Mar. 8, 2001).

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5. When there is no interference from the national broadcast networks, are local broadcastlicensees meeting their obligations to serve local community needs, or is greater publicintervention necessary to ensure diversity of local programming?

The FCC’s newspaper/broadcast cross-ownership rule plays a very different role from thenational broadcast cap in promoting a marketplace that protects the public interest. ConsumersUnion believes that this prohibition on a local newspaper owning a local broadcast outlet in thesame community has much more to do with promoting checks and balances in media coverageof news and information (including matters affecting the business interests of newspapers andbroadcasters) than competition. The fact that virtually every community in this country has onlyone financially stable community-wide newspaper, and that broadcast does not competeeffectively with newspapers, should give the FCC pause as it considers relaxing or eliminatingthe cross-ownership rule:

Wasn’t it television and radio that were going to kill newspapers? “I don’t reallyconsider them competition in that old-school way,” stresses Florida Sun-Sentineleditor Earl Maucker. “They reach a different kind of audience with a differentkind of news…

Publisher Gremillion, a former TV executive himself, seconds the point, “I don’tbelieve people are watching TV as a substitute for reading the newspaper…”

…Many newspapers are increasingly writing off local TV news as a seriousthreat, treating local stations instead as potential partners who can help spreadthe newspapers’ brand name to new and bigger audiences.12

It is difficult to imagine the Thomas Paine pamphleteer tradition of print journalism – consideredso valuable to our core beliefs that the Supreme Court granted it the most far reaching FirstAmendment protections13 -- will be able to survive in a world where newspapers becomemarketing devices for broadcasters. Print journalists often assert an allegiance to their almostcentury-old creed:

I believe in the profession of journalism. I believe that the public journal is apublic trust; that all connected with it are, to the full measure of theirresponsibility, trustees for the public; that acceptance of lesser service than thepublic service is a betrayal of this trust.14

Compare these journalistic values with the image presented by Tribune Company executives,describing how the Chicago Tribune and Chicago television station WGN, among other mediaproperties, view their business:

Tribune had a story to tell – and it was just the story Wall Street wanted to hear.

In charts and appendices, they showed a company that owns four newspapers—and 16 TV stations (with shared ownership of two others); four radio stations;

12 Stepp, Carl Sessions, “Whatever Happened to Competition,” American Journalism Review (June 2001).13 New York Times Co. v. Sullivan, 376 U.S. 254 (1964).14 Kunkel, Thomas and Roberts, Gene, “The Age of Corporate Newspapering; Leaving Readers Behind,” American

Journalism Review (2001) citing Walter Williams, The Journalist’s Creed (1914).

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three local cable news channels; a lucrative educational book division; aproducer and syndicator of TV programming, including Geraldo Rivera’s daytimetalk show; a partnership in the new WB television network; the Chicago Cubs;and new-media investments worth more than $600 million, including a $10 millioninvestment in Baring Communications Equity Fund, with dozens of Asian officeshunting out media investments.

…There was an internal logic and consistent language to their talk: Tribune, saidthe four men, was a “content company” with a powerful “brand.” Among andbetween its divisions, there was a “synergy.”

…It was a well-scripted, well-rehearsed performance, thorough and thoroughlyupbeat. And the word “journalism” was never uttered, once.

…Even apart from TV and new media—at the Tribune papers themselves—theeditor in chief rarely presides at the daily page one meeting. The editor’s gaze isfixed on the future, on new zoned sections, multimedia desks, meetings with thebusiness side, focus group research on extending the brand, or opening newbeachheads in affluent suburbs. “I am not the editor of a newspaper,” saysHoward Tyner, 54, whose official resume identifies him as vice president andeditor of the Chicago Tribune. “I am the manager of a content company. That’swhat I do. I don’t do newspapers alone. We gather content.15

In highlighting the Tribune Co., we do not mean to suggest that there is anything wrong with thecompany’s behavior. On the contrary, economic “synergies” may certainly help Tribune improvethe quality of its media products. And we do not mean to suggest that other factors, likenewspaper consolidation and newspaper ties with other corporate entities, do not also challengeprint journalist’s ability to follow their creed. However, when the two largest sources of newsand information – television and newspaper16 – come under the same ownership roof, there isspecial cause for concern about business pressures that could undermine the free marketplaceof ideas.

Consumers Union believes that, particularly where there is only one local newspaper, the publicinterest is best served by prohibiting that newspaper from owning a local television broadcastoutlet. Dangers ranging from favorable newspaper reviews of a broadcaster’s programming, topositive editorials/opinion articles about business interests of a broadcaster or politicians whofavor such business interests would be difficult to prevent if cross-ownership is broadlypermitted:

Down in Tampa, Media General has gone so far as to put its newspaper, theTribune, in the same building with its local television station and online operation,the better to exchange stories and, ostensibly, resources. (It’s still unclear whatthe newspapers get out of the bargain other than garish weather mapssponsored by the local TV meteorologist.) Tampa’s has become the mostsophisticated model of this kind of thing, and as such is drawing enormousinterest from other newspaper companies.

15 Auletta, Ken, “The State of the American Newspaper.” American Journalism Review (June 1998).16 Media Studies Center Survey, University of Connecticut, Jan. 18, 1999.

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Under the Tampa model, and presumably in most major city rooms of the future,news decisions for all these outlets are made in a coordinated way, sometimes inthe same meeting. In effect the same group of minds decides what “news” is, inevery conceivable way that people can get their local news. This isn’t sinister;it’s just not competition.17

Except where there is meaningful competition between local newspapers, we believe that liftingthe newspaper/broadcast cross-ownership ban would significantly undercut the watchdog rolethat newspapers play over broadcasters and thereby undermine – particularly in the realm ofpolitical speech – Congress’ goal of ensuring an open marketplace of ideas.

It is time for the FCC to engage in a careful analysis of media and communication markets,before it considers altering current ownership rules. Consumers Union believes that such aanalysis will demonstrate the need to preserve the national broadcast network ownership capand newspaper/broadcast cross-ownership rule in order to promote the publics interest in moremedia and communications competition, diversity of ownership, and protecting the FirstAmendment rights of citizens whose tastes do not correspond to those of the majoritynationwide or in a particular community.

17 Kunkel, Thomas and Roberts, Gene, “The Age of Corporate Newspapering; Leaving Readers Behind.” American

Journalism Review (May 2001).

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AppendixMAPPING MEDIA MARKET STRUCTURE

AT THE MILLENIUM

Prepared by Dr. Mark N. Cooper

I. TECHNOLOGICAL PROMISE VERSUS ECONOMIC REALITYIN CONCENTRATED MEDIA MARKETS

A. Digital Day Dreaming

For the better part of the past decade public policy debate over the media has beenpreoccupied with a looming technological revolution. This “revolution,” always just over thehorizon, but never reached, promises that competition to cable and telephone monopolies willcome from the next-generation Internet.1 The cable companies have successfully argued for adecade that we should allow them to extend their monopolies because they will competeagainst local phone companies. The phone companies tell us we should allow them to extendtheir monopolies because they will offer a full range of video services that will compete againstthe cable companies. The TV networks argue that cable and the Internet have overtaken them.However, this cross-media competition is always just beyond our grasp and the solution offeredis always less rules, more monopoly.

It cannot be denied that a kind of revolution has occurred. Gains in efficiency andworker productivity from computing technology2 stimulated an unprecedented economic boomover the last decade.3 Digitization, whereby images, voice and text are all converted to zeroesand ones, allows for services that were once transmitted over different networks to betransmitted over the same wire.4 This “convergence” of television, telephone, and text services(such as email and fax) allows the theoretical possibility of powerful, all-purpose networks,transforming citizen participation5 and promoting vigorous competition between networkowners. These next-generation broadband networks, we are told, are poised to dethrone theincumbent monopolists, transform social interaction and education and remove the ability ofpowerful interests to control political and commercial speech.

With this impending convergence revolution, the story is that all this and more will beunleashed if only for fewer rules, further deregulation, and a little more elbow room for thebiggest media conglomerates. They argue that we no longer need policies to prevent excessiveconcentration of influence and control over the mass media, to promote diversity of points ofview in the media, and to ensure the availability of public interest and locally orientedprogramming. We are told that we no longer have to impose restraints on the unfettered playof economic interests in media markets because the new technology creates self-enforcing

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mechanisms that will ensure a vigorously competitive media economy and a more democratizedsphere of political discourse.

B. The Public Policy Nightmare

Unfortunately, this story may be a fairy tale without a happy ending. If our only mediapolicy is enthusiastically pro-consolidation, it is unlikely that this new technology will everachieve its real potential.6 Rather than becoming a means of expanding economic choice andpolitical expression, concentration of ownership and control of the more powerful means ofcommunications will result in controlled and restricted access,7 commercialization at theexpense of public spirited and diverse programming,8 and homogenized national offerings,bereft of local content and relevance, with large segments of society left behind.9

It is true that a small class of users, “information intensives,” is beginning to use certainmedia more interchangeably (e.g. they can afford satellite television, they are regular users ofthe Internet and in many cases have chosen to adopt broadband (high-speed) Internetservices.10 These users have the ability to access all types of media and are voracious mediaconsumers. However, this is of course a very narrow segment of the population accessingapplications that do not compete with the dominant media offerings. Indeed, despite theInternet's theoretically democratizing influence and potential, powerful media owners still havea great ability to "pull the plug," or direct the flow of communications. This new medium maybe more prone to domination and control. There is also a concern that control andpolicymaking shifts out of the hands of “duly elected” governments. 11

Network gate keeping of this sort is more than a speculative possibility—at thebeginning of this month (July 2001), Charter Communications removed ESPNews from thehomes of about 250,000 cable customers because ESPN would not agree to restrictionsdemanded by Charter on the distribution of ESPNews programming on the Internet.12 Lastyear, Time Warner Cable removed Disney from its cable systems in a similar dispute.

Cable operators have not been shy about their ability to restrict subscribers’ content.Kevin Leddy, Senior Vice President for New Products at Time Warner Cable told a New YorkTimes reporter that “For the next few years, what you see on our screen will be our partners.If a programmer wants to have ability to have two-way communication with viewers, the cableoperator has to be part of that.”13 AT&T, the largest cable company has taken a similar view,insisting that its brand be the entryway to the Internet and preserving its ability to steer trafficto its partners.14

Public policy is most critically important now for two reasons. First, the new interactive,multi-media hold the potential to increase the power of the TV medium—by adding interactivityand much higher visual quality to a medium that already has great communicative power withimmense reach,15 real time immediacy,16 and visual impact—and expand its role in commerceand political expression.17 Second, it is critical to ensure public values are reflected in theunderlying infrastructure of the media marketplace at the early stages, as the networks arebeing designed and deployed. 18 Economic and contractual relations create barriers to accessand give owners control, and, perhaps more importantly,19 architectural decisions in the designof networks place speakers and non-owners at a disadvantage.20

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D. Outline of the Report

The discussion is organized as follows. Section II describes the nature and role ofdifferent media in the current market demonstrating that different media occupy differentproduct spaces in both the commercial marketplace and the marketplace of ideas.

Section III demonstrates that each specific product space remains concentrated, andtherefore a source of concern for public policy.

Section IV demonstrates that national media markets present problems of concentrationand vertical integration.

Section V argues that based on extensive empirical evidence, public policy cannot relyon economic forces alone to accomplish the goal of ensuring a marketplace of ideas thatprovides diversity and local content.

II. CHANGE AND CONTINUITY:DIFFERENT MEDIA OCCUPY DISTINCT PRODUCT SPACES

While the advocates of convergence equate all media, the reality is that different mediaserve different needs, have different content, and differ widely in their impact and effect.People use different media in different ways, spend vastly different amounts of time in differentmedia environments, consume services under different circumstances and pay for them indifferent ways. As a result, competition between the media is muted in the marketplace and, insome respects, the specialization of each is worth preserving because of the unique functionsprovided in the marketplace of ideas.

Exhibit 1 provides a description of the key characteristics of the relevant media marketincluding audience size, media use and advertising spending over the past decade and a half.We include daily entertainment/information media, since they are most directly relevant to thecentral civic discourse concerns of public policy. Exhibit 2 shows the 1999 breakdown ofadvertising revenues, which underscores the fact that these are distinct markets.

Exhibit 3 presents the media product space as defined by three characteristics – mediatype, market-orientation and revenue base. There are two distinct types of media, video andnon-video. There are two distinct markets, national and local. There are two different revenuemodels, advertising and subscription. Each of these media types largely occupies a separateproduct space. Competition across these product categories is weak at best. While there issome overlap, or competition at the edges of each product space, but the core of each isinsulated from competition from the others. Some market characteristics have changed sincemany of the media ownership rules were first enacted, but it is not clear that the changesrequire us to dramatically alter the long standing public policies that prevent excessive controlor influence over mass media, to promote diversity, and to ensure the availability of publicinterest/locally-oriented programming.

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EXHIBIT 1:MEDIA MARKETING DATA

1985 1993 1998 2000pUTILIZATION (% OF HH with)Broadcast 85 93 98 98Cable 43 61 67 69Radio 99 99 99 99Newspaper 63 60 56 .Internet 0 0 33 45UTILIZATION (% of Adults Reporting Use)Broadcast 92 93 92 94Cable 48 60 70 71Radio 85 86 84 84Newspaper 85 84 80 79Internet 0 0 33 45HOURS PER ADULT (per year)Broadcast 1320 1082 884 805Cable 210 453 689 786Radio 1200 1082 1050 1024Newspaper 185 170 156 152Internet 0 2 74 122Total 2915 2789 2853 2889ADVERTISING (Billion $, Nominal) 1999pBroadcast 14.6 28 39 41Cable 0.7 4 8 10Radio 6.5 9 15 17Newspaper 25.2 32 44 47Internet 0 0 1 2Total 47 73 108 117Constant 1998 $Broadcast 18.1 31 39Cable 0.9 4.4 8Radio 8 10 15 Newspaper 31.2 35.4 44Internet 0 0 1Total 58.2 80.8 108ADULT POP. (Million) 175 191 200AUDIENCE 510.1 532.7 570.6(Pop x Hours, billion)

MARKET (constant 1998 $) 2804 4043 4646(Pop x Income, billion)

DISPOSABLE INCOMENominal 12941 19121 23231Real, 1996$ 18229 20384 22569

Source: U.S. Census Bureau, Statistical Abstract of the United States: 2000 (U.S. Department of Commerce, 2000),Tables 17, 722, 909, 910, 911, 931, 932, 937, and various equivalent table in earlier editions.

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EXHIBIT 2:

DISTRIBUTION OF NATIONAL AND LOCAL ADVERTISING AND TOTAL REVENUE BY MEDIATYPES

DISTRIBUTION % OF TOTAL DISTRIBUTION OF WITHIN MEDIA REVENUE ADVERTISINGTYPES FROM ACROSS MEDIA TYPESPERCENT OF MEDIA NATIONALADVERTISING ADVERTISING LOCAL NATIONALLOCAL NTL TOTAL $ % $ %

NEWSPAPERS 87 13 100 6 41 59 6 13

RADIO 76 24 100 23 13 19 4 9

CABLE 30 70 100 25 3 4 7 16

BROADCAST 32 68 100 68 13 19 28 62

TOTAL 61 39 100 70 100 45 100

Source: Calculated from Exhibit 1 and U.S. Census Bureau, Statistical Abstract of the United States: 2000 (U.S.Department of Commerce, 2000), Table 908, 927, 937.

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EXHIBIT 3

THE MEDIA PRODUCT SPACE

MARKET ORIENTATION NATIONAL LOCAL

REVENUE BASE Advertising Subscription Advertising SubscriptionAdvertising

MEDIUM SatelliteVIDEO

Cable Networks

TV Networks TV Stations Cable System Operators

OTHER Internet Radio Newspaper

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The fact that the product spaces were different in the past cannot provide marketdiscipline in the present.21 The fact that some people would like the Internet to provide more anew form of more meaningful local content, or that cable might someday have a bigger impacton the prime time TV market cannot provide the market forces necessary to discipline a productspace that they have failed to successfully enter or occupy.

A. Broadcast/Network TV

TV networks still dominate the most valuable viewing time – prime time – and capturethe lion’s share of national advertising dollars. They can be considered “prime-timeprogramming juggernauts.”22

Network advertising revenue growth has far outstripped population growth or anychange in viewing habits (advertising revenue has grown about 117 percent as compared toadult population/audience = at most 14 percent; market size = 64 percent). Based on theseentertainment/information media, broadcast’s share of the total advertising pie has increasedfrom 31 percent to 36 percent.

Network TV is primarily a nationally oriented medium. National advertising revenueaccounts for the majority of its revenue. The TV networks account for the majority of nationaladvertising dollars spent in these media.

As noted, TV networks dominate the national video product space with original primetime programming. Nevertheless, local advertising revenues and local stations play animportant role in the TV market. The tension within the traditional broadcast industry has beenfueled by the conflict of economic interests between local stations and national networks. Thistension bears directly the provision of local content, one of the most prominent aspect of policyin electronic media.23

TV networks are in a different class than the other media in terms of advertising dollars.Broadcast remains in a different category than cable. Cable TV has only captured a limitedamount of prime time, but has captured significant numbers of viewers during non primetimehours. This is the primary reason cable’s average advertising rates remain low in comparison tobroadcast.24

TV ratings and audience market shares show that the networks dominate prime time.The top 20 or so TV shows are all prime time network products. They fill about three quartersof the weekly prime time viewing hours (8 pm to 11 pm). The top 20 shows capture between150 and 225 million household hours of viewing per week. Almost all of it these shows areoriginal network programming. A small amount, 10 to 20 million households might be viewing anetwork movie.

Cable’s top products are quite different. Of the top twenty cable network shows, abouthalf are in prime time. They capture 20 to 40 million household hours. About half are rerunmovies, not programming.

Equally important for public policy is the central role that the networks play indissemination of news. Television has been the primary source of news for over a decade. On

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average, each night between 20 and 25 million households tune in to the early evening flagshipnews shows on the three major networks. In contrast, the four major cable news networkscapture about 3 million viewers over the course of their entire early evening/ prime time newsoffering.

Combining news and all of primetime, which is the networks' bread and butter, the bigthree networks capture about ½ billion household hours of weekly viewing, including of coursethe dominant news shows. The top three cable networks capture about 1/5 of that and provideno news. From a commercial and information point of view, the networks are still king.

B. Cable TV

Cable provides local distribution of video content primarily capturing non-prime timeviewing. Cable TV has taken a substantial bite out of network TV viewership. While totalhours watching TV have been almost constant over the past fifteen years, cable’s share hasgrown from 14 percent to almost 50 percent.

Cable systems operators are the local distribution system for cable, franchised at thelocal level, although federal preemption has scaled back the role of local franchising authorities.Lately there has been a strong trend to regionalizing the local cable companies so thatcontiguous areas are joined under one company. The large national cable networks built upover the past couple of decades have been created by buying up small MSOs. There has alsobeen a strong trend toward vertically integration into programming, primarily by purchasinglibraries of programs and sports entertainment. Cable has become a local distributionmechanism for national programming.

In contrast to network TV, which is funded entirely by advertising, cable is fundedprimarily by subscription revenues although national advertising revenues have been growing.Local advertising still plays a small role in cable and cable plays a small role in the localadvertising market. Newspapers account for 13 times as much local advertising revenue andradio accounts for four times as much.

C. Satellite

Satellite occupies a much narrower product space than cable. It is a high-cost, nichedistribution system. Given its cost characteristics, it does not compete with basic cable. Giventhat satellite still lacks robust local programming and its lack of original prime timeprogramming, it is not yet a substitute for network TV or cable.

During the decade of the 1990s, satellite filled out its niche. It now has about 13 millionsubscribers, compared to cable’s almost 70 million. However, it has failed utterly to control theabusive pricing practices of cable. DBS’s large channel capacity and high front-end costs dictatethe packaging of large numbers of high priced channels and/or long-term contracts. As a result,DBS is a small competitive fringe that is not capable of disciplining cable TV pricing. DBS stillcosts more than twice as much as cable does, not including the front-end system costs, whichundermines its ability to compete on price.

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In a sense, this failure is most evident since the passage of the 1996Telecommunications Act, when cable TV returned to its historic pricing pattern, unrestrained bythe pressures of satellite expansion. In real terms, cable rate increases were larger with thepresence of an expanding satellite sector than without it. A recent study by the FederalCommunication Commission failed to find a significant price disciplining effect of satellite oncable.25 Cable makes much more money by increasing prices for basic cable than competing inthe DBS niche. Even in the midst of the debate over delivery of local stations by satellite, thelargest satellite provider made it clear that price competition for the basic package was not inthe offing.26

The addition of high priced digital cable and cable modem Internet services strengthenscable’s advantage over satellite. By adding services at the high end, cable operators will beable to attack the high-end niche that satellite occupies. Cable’s monopoly in basic can now beleveraged to leapfrog satellite on the high-end of the market, particularly when it is bundledwith high-speed Internet access. .27

The failure of satellite to discipline cable pricing abuse and the failure of cable tocompete with local telephone service are among the greatest disappointments of the 1996Telecommunications Act and they tell a great deal about the prospects for cross technologycompetition. Congress had great hopes for this form of competition. In fact, the only facilities-based competitor for local telephone service actually mentioned by the Act’s Conference reportwas cable TV.28 Similarly, Congress devoted a whole section to telephone competition for cablethrough open video systems.29 Neither of these has proven effective competition. Open videosystems are non-existent30 and the only telephone company that has pursued entry into thecable business as a plain overbuilder -- Ameritech -- was purchased by another telephonecompany -- SBC -- that is exiting the cable business.

Moreover, the failure of satellite to discipline cable pricing and marketing abuse comesafter the longstanding failure of over-the-air television to provide this economic function. In1984, the Congress gave the FCC the authority to deregulate price in competitive cable TVmarkets. The FCC determined that three over-the-air channels were enough. In addition, itwas expected that head-to-head competition between cable companies would grow and thatcompeting technologies would add further competition.31 As a result, cable systems servingabout 80 percent of the country were deregulated. When competition failed to materialize,cable prices exploded and a public outcry ensued. 32

In an effort to stave off legislation to reregulate cable, the FCC reconsidered its threeover-the-air rule and switched to six over-the-air stations as a standard. However, the pricingabuse was too great and the FCC’s standard too weak to forestall legislation. Congressreregulated rates in 1992 and placed a range of “procompetitive” conditions on the industry. Itis obvious that in the current market environment, broadcast cannot compete with cable formulti-channel video service.

C. The Internet

The Internet has not yet evolved into a ubiquitous mass communications medium thatcan challenge the other media. It accounts for less than 4 percent of viewing hours andadvertising dollars. It appears to occupy a new media space.33 It provides a national, non-

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video national product.34 The Internet is starting to look a lot more like cable than broadcast inits revenue model.

AOL’s bundling is like cable’s bundling, adding more and more features that glue indifferent segments of the market. AOL makes five times as much in subscription revenue asthe entire Internet generates in advertising revenue. This is somewhat greater than theproportion of subscription to advertising on cable. The enthusiasm for the AOL Time Warnermerger derives in part from the fundamental similarity of the subscription based models ofcable TV, print publications and the Internet.

In this subscription model people pop on an off to meet their short, narrowcast needs,but are not glued to the tube and do not generate a great deal of advertising (or, for themoment ancillary revenues). It is a personal productivity device particularly well-suited toinformation intensive users.35 For the vast majority, it is a shopping mall at the fingertips ofsubscribers, enhancing daily activities. Internet traffic is made up of a couple of hours ononline time per week spread over a dozen sessions with a minute or so at any given page. Theleading advertisers on the Internet are a completely different group than one sees ontelevision.36

For a new generation of users, applications such as instant messaging hold the promiseof someday serving as substitutes for telephone service. This obvious possibilitycommunications does not necessarily extend to entertainment media. Moreover, given currentinteroperability disputes and the failure of public policy to identify a communications function tobe supported by interoperability, instant messaging may never get to that point. Indeed, giventhe current state of affairs in which the same few companies own monopoly delivery wires,cable TV stations, and dominate high speed Internet the prospects that the Internet will beliberating, democratizing medium seem to be fading. Moreover, Given the current state of thedot.bomb revolution, relying on the Internet to discipline powerful media giants is wishfulthinking at best.

D. Radio and Newspapers

Newspapers and radio serve local markets capturing a very different type of advertisingdollar. Radio, newspapers and magazines are substitutes from an advertiser’s perspective. Thestability of their market shares indicates that they are not likely to be greatly eroded by newmedia in the near term.37 There is some evidence that cable and newspapers are cross elastic,which reflects the fact that they are both local.

Radio and newspapers occupy the non-video local product space.38 National advertisingaccounts for a modest share of radio and newspaper revenues. Newspapers dominate the localadvertising market with classified ads comprising the majority of newspapers’ revenues.39

Radio has fallen into a special niche -- “For many, it serves as background as theyengage in other activities such as working or driving”40 – that may derive from the differentdemands it places on the listener.41

E. Media Product Spaces Differ in the Marketplace of Ideas

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The previous discussion places each media type in a largely commercial product space.We should not be surprised to find that the differences in commercial product space are alsoevident in the marketplace of ideas. These media play different roles in the realm of politicaldiscourse and news. 42 It is a mistake to define all media as the same in terms of their impact orto believe that new media will displace the old. The special role of TV in the marketplace ofideas has been examined from many points of view. Of special important are the uniqueimpact of TV,43 its influence on political attitudes and behaviors,44 and its prominent place inelection campaigns.

TV in general, and network TV in particular, has become the premier vehicle for politicaladvertising. The differential impact of television advertising is clear.

Clearly, television is a unique communications medium unlike any other, includingprint, radio, and traditional public address. Unlike most other media, televisionincorporates a significant nonverbal component, which not only serve to suppress theimportance of content but also requires little deliberative message processing…

A number of empirical studies have concluded that reliance on information fromtelevision leads to less understanding of policy issues than newspapers. Studies alsoindicate that when people use television for political news, they emerge less informedthan those of equal education and political interest who avoid the medium.45

As suggested, newspapers provide a different type of information service withdifferent impact. They also provide a different news function than video or radio, withmuch longer and in depth treatment of issues. In this they have adapted to a role that isdistinct from television.

The news business itself reflects the partitioning in its awards… Pulitzer prizes havebeen added for criticism, features, and explanatory writing, because those are aspectsof news left for print excellence in television’s wake… For while television editorializingcan be intelligent and eloquent, and even promote political change, the star treatmentaccorded to television news personalities removes them from the civic discourse.46

One area of great significance is local news reporting. Newspapers devotegreater attention to local news47

Television and radio have long been recognized as occupying different product spaces48

although radio’s role may be changing.49 Generally, radio is seen as having less of an impactthan television.50 However, the difference may be exposure to political advertising on TV, whileradio talk shows have a different impact.51

III. MEDIA MARKETS REMAIN CONCENTRATED

Newspapers, radio stations and cable TV stations have experienced substantialconsolidation in the last fifteen years and have become highly concentrated. Network TV

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remains a concentrated market. The Internet has become more concentrated more quickly thananyone dreamed when measured either in terms of subscribership or usage.

A. Measuring Market Concentration

To understand the justification for concern in these markets we can refer to the U.S.Department of Justice (DOJ) merger guidelines.

The DOJ defines market levels of concentration to determine the extent of review ofmergers.52 DOJ is unlikely to challenge mergers between companies in markets that are inunconcentrated. To make this assessment, it calculates the index of concentration known asthe HHI (Hirshman-Herfindahl index). 53 Another way to quantify market concentration is tocalculate the market share of the largest 4 firms (4 firm concentration ratio or CR4).

Under Merger Guidelines issued early in Ronald Reagan’s first term, the DOJ considers amarket with an HHI of 1000 or less to be unconcentrated. Such a market would have theequivalent of ten equal sized competitors. In such a market, the 4-firm concentration ratiowould be 40 percent (see Exhibit 4). Any market with a concentration above this level wasdeemed to be a source of concern and increases in concentration through mergers wouldreceive scrutiny.

EXHIBIT 4: DESCRIBING MARKET CONCENTRATION FOR PURPOSES OF PUBLIC POLICY

DEPARTMENT OF EQUIVALENTS IN HHI 4-FIRM JUSTICE MERGER TERMS OF EQUAL SHAREGUIDELINES SIZED FIRMS

5 EQUAL SIZED FIRMS HHI= 2000 CR4=80

HIGHLY CONCENTRATED HHI= 1800 OR MORE

6 EQUAL SIZED FIRMS HHI= 1667 CR4=67

UNCONCENTRATED 10 EQUAL SIZED FIRMS HHI= 1000 CR4=40

Sources: U.S. Department of Justice, Horizontal Merger Guidelines, revised April 8, 1997, for a discussion of the HHIthresholds; Shepherd, William, G., The Economics of Industrial Organization (Prentice Hall, Engelwood Cliffs, N.J.,1985), for a discussion of 4 firm concentration ratios.

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The DOJ considers a market with an HHI of 1800 as the point where a market isconsidered highly concentrated. In terms of equal sized competitors, this level falls between fiveand six. A market with six equal sized competitors would have an HHI of 1667. In such amarket, the four firm concentration ratio would be 67. A market with five equal sizedcompetitors would have an HHI of 2000. The four firm concentration ratio would be 80percent.

Shepherd describes these thresholds in terms of four-firm concentration ratios asfollows:54

Tight Oligopoly: The leading four firms combined have 60-100 percent of the market;collusion among them is relatively easy.

Loose Oligopoly: The leading four firms, combined, have 40 percent or less of themarket; collusion among them to fix prices is virtually impossible.

Shepherd refers to collusion, but that is not the only concern of is not the only concernof market power analysis, or the Merger Guidelines. The Merger Guidelines of the Departmentof Justice recognize that market power can be exercised with coordinated, or parallel activitiesand even unilateral actions.

Market power to a seller is the ability profitably to maintain prices abovecompetitive levels for a significant period of time.*/ In some circumstances, a soleseller (a "monopolist") of a product with no good substitutes can maintain aselling price that is above the level that would prevail if the market werecompetitive. Similarly, in some circumstances, where only a few firms account formost of the sales of a product, those firms can exercise market power, perhapseven approximating the performance of a monopolist, by either explicitly orimplicitly coordinating their actions. Circumstances also may permit a single firm,not a monopolist, to exercise market power through unilateral or non-coordinated conduct --conduct the success of which does not rely on theconcurrence of other firms in the market or on coordinated responses by thosefirms. In any case, the result of the exercise of market power is a transfer ofwealth from buyers to sellers or a misallocation of resources.

*/ Sellers with market power also may lessen competition on dimensions otherthan price, such as product quality, service or innovation.55

Because of the critical importance of the media not only an economic marketplace, butas the cornerstone of the marketplace of ideas, we believe these industries should be held toclose scrutiny. The critical level for scrutiny is the unconcentrated threshold (roughly theequivalent of 10 or more equal sized firms).

B. Media Markets

The Internet provides a most instructive starting point for the discussion, since, intheory, the number of Internet Service Providers is infinite, yet the market has becomeconcentrated. TV networks and cable companies frequently argue that the number of outlets is

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all that matters, rather than the market share of the outlets. However, we believe this is thewrong approach since the distribution of attention is far more concentrated than the number ofchannels suggests.

For economic analysis we do not count stations, we count what the eyeballs watch. Inno other market do we simply count the number of competitors. We always look at theirmarket share. Recently, Microsoft asserted that there were seven different operating systemsin the marketplace with over twenty thousand applications available and at least three differentcomputing environments (handhelds, PCs and the Internet), and therefore they could notpossibly be a monopoly. Even a conservative appeals court blew that argument away.56 Marketstructure analysis must be grounded on the actual market shares, not merely the number ofparticipants and the rapidly increasing concentration of the Internet underscored that point.

The increasing concentration of the Internet is stunning (see Exhibit 5). AOL’sdominance of subscribership in the U.S. is widely noted (30 million subscribers, putting itsmarket share above 50 percent). Its market share makes it a leading firm in a highlyconcentrated market.57 Even more striking is the growth in the concentration of usage.

Because the number of potential online channels is infinite, some assume that marketdominance is an impossibility on the Internet. This is faulty reasoning. Gaugingconsolidation online simply requires a different measuring stick than it does off-line.

Analysis of Media Metrix data over the past three years shows an incontrovertible trendtoward online media consolidation…. Between March 1999 and March 2001, the totalnumber of companies controlling 50 percent of user minutes online decreased bynearly two-thirds, from 11 to four.58

Because AOL has such a dominant position (over 30 percent of user time) the HHI isabout 1200, well above the moderately concentrated threshold. The four firm concentrationratio also falls in the range where concerns about concentration and the abuse of market powerbegin.

Most local distribution markets for network TV are highly concentrated measured eitherin terms of viewers or advertising dollars. HHIs are well above 1800 and four firmconcentration ratios are well above sixty percent in all but the very largest markets. Thenational market for viewers (HHI=1000) and advertising (HHI=1600) is moderatelyconcentrated.

Although the FCC claims that the cable TV market falls just below the level of beingmoderately concentrated (HHI = 954), it arrives at this conclusion by ignoring AT&T’ssubstantial ownership interests in Cablevision and AOL Time Warner and by including satellite inthe same product space, even though it could not find significant cross-price elasticity betweencable and satellite. Defining the market correctly as cable only and taking AT&T’s ownershipinterests into account places the cable TV market into the highly concentrated category.

The recent wave of mergers has moved local radio markets into the highly concentratedrange, with HHIs averaging above 2000. Newspapers have long been highly concentrated, withHHIs above 6000.

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EXHIBIT 5:

MARKET AND PERIOD OF MOST RECENT DATA LEVEL OF CONCENTRATION

Internet (2000) Subscribers 2500 Viewing Time 1200Television (mid-1990s) Local Viewing - Advertising

Largest Fifth 1600 - 7002nd Fifth 2000 - 16003rd Fifth 2100 - 23004th Fifth 2700 - 2300Smallest Fifth 2500 - 3100

NationalViewing 1100Advertising 1700

Cable Subscribers (1999) FCC - MPVD w/o Attribution of AT&T Ownership 1000 w/ Attribution 1400 Cable only w/o Attribution of AT&T Ownership 1900 w/ Attribution 2500Radio Local Share (1997) 1600 - 2100Newspapers Circulation (1999) 6000

SOURCES:

Internet: Jupiter Research, Online Media Consolidation Offers No Argument for Media Deregulation, 2001

Television: Cooper, Mark, based on Economists Incorporated, “An Economic Analysis of Broadcast Television NationalOwnership, Local Ownership, and Radio Cross-Ownership Rules,” Before the Federal Communications Commission, InRe: Review of the Commission’s Regulations Governing Television Broadcasting, MM Docket No. 91-122, May 17,1995. These are consistent with the estimates for a couple of years earlier in Bates, Benjamin, “Concentration inLocal Television Markets,” Journal of Media (Fall) 1993, Table 1.

Cable TV: Calculated by the author based on Federal Communications Commission, Seventh Annual Report In theMatter of Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, CSDocket No. 00-132, January 8, 2001, Table C-3.

Radio: Berry, Steven T. and Joel Waldfogel, “Mergers, Station Entry, and Programming Variety in RadioBroadcasting,” National Bureau of Economic Research, April 1999, Table 2. Ekelun, Robert B., Hr., George S. Ford,and Thomas Koutsky, “Market Power in Radio Markets: An Empirical Analysis of Local and National Concentration,”Journal of Law and Economics (April) 2000, p. 170.

Newspapers: George Lisa and Joel Waldfogel, “Who Benefits Whom in Daily Newspaper Markets,” National Bureau ofEconomic Research, October 2000, Table1, earlier estimates are somewhat higher, see Lacy, Stephen and LucindaDavenport, “Daily Newspaper Market Structure, Concentration, and Competition,” The Journal of Media Economics,1993 (7), p.40.

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IV. ALL MEDIA MARKETS ARE NOT LOCAL, NATIONAL MARKETSHARE IS A SOURCE OF MARKET POWER

Distribution of most media is “local” in the sense that a local TV or radio station, cableoperator or telecommunications service provider establishes the link to the network. Videoprogramming markets are national. Similarly, consumers make their choices from the menu ofstations that is available in their local market. That does not mean that the market for contentis “only local.” Creation of dominant national players who control distribution of either cable TVchannels or network TV shows confers market power to determine what the distributioncompanies can play in two ways. They may gain control over so many eyeballs (i.e. systems ofstations) that they can make or break programming by refusing to allow access to the audiencebecause the successful launch of a channel or show requires getting in front of enough eyeballsto succeed. This ability to influence the market as a purchaser of programming is calledmonopsony power. Dominant national players may also directly own programming and dictatewhat can be shown. Here the problem is leveraging through vertical integration.

A. Monopsony

Concern about the ability of program buyers to behave in anticompetitive ways – toabuse their monopsony power, are well grounded in economic law and experience. Forexample, the Merger Guidelines, first issued by The Department of Justice headed by Ed Meesein 1984 and revised slightly in April 1992 and April 1997, which are intended to prophylacticallyprevent the accumulation of excessive market power59 identify monopsony along side monopolypower.

Market power also encompasses the ability of a single buyer (a "monopsonist"), acoordinating group of buyers, or a single buyer, not a monopsonist, to depress theprice paid for a product to a level that is below the competitive price and therebydepress output. The exercise of market power by buyers ("monopsony power") hasadverse effects comparable to those associated with the exercise of market power bysellers. In order to assess potential monopsony concerns, the Agency will apply ananalytical framework analogous to the framework of these Guidelines.60

The merger guidelines identify the threat of abuse of market power by a monopsonist ata relatively low level -- 35 percent.

Where products are relatively undifferentiated and capacity primarily distinguishesfirms and shapes the nature of their competition, the merged firm may find itprofitable unilaterally to raise price and suppress output. The merger provides themerged firm a larger base of sales on which to enjoy the resulting price rise and alsoeliminates a competitor to which customers otherwise would have diverted their sales.Where the merging firms have a combined market share of at least thirty-five percent,merged firms may find it profitable to raise price and reduce joint output below thesum of their premerger outputs because the lost markups on the foregone sales maybe outweighed by the resulting price increase on the merged base of sales.61

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This 35 percent figure is well grounded in antitrust practice in the sense thatmergers have been successfully challenged at this level.62 Similarly, a 30% limit is wellgrounded in monopsony complaints. For example, in the Toys R Us case, noted above, themarket controlled was “20% of the national wholesale market and up to 49% of some localmarkets.”63

These thresholds on market size are also well grounded in the literature on video media.One recent study of cable systems power over programming concluded as follows.

Finally, our results are relevant to an important policy issue in the cable industry.Numerous claims have been made that larger cable MSOs, such as TCI and TimeWarner have excessive influence over entry and competition of cable networks. Ouranalysis lends credibility to these claims. A basic cable network whose householdreach was reduced from 70 million to a 60 million households multi-channel universedue to an MSO’s carriage decision, for example, would not only have 10 million fewerhomes to offer advertisers, but would be able to charge substantially less perhousehold (about 17% less according to our log linear estimates for the 60 millionhouseholds that are reached. The leverage of an MSO controlling access to asignificant portion of all U.S. multi-channel households is thus greater than itspercentage market share alone suggests. By threatening to withhold access to itssubscribers, an MSO with a relative small national market share by usual antitruststandards might extract input price concession from the network, or otherwise engagein anticompetitive behavior that reduces program quality of diversity.64

The example given represents a 14 percent share of the 70 million household cableTV market. The resulting loss of revenue to a program denied access to 10 millionhouseholds is 29 percent reduction. The citations point out that at the time, Time Warnerhad an 18 percent market share and TCI had about a 30 percent market share of the cableTV market. Denial of access to a single MSO with an 18 percent market share wouldreduce a program’s revenues by over 30 percent according to this analysis. Denial ofaccess to a single MSO with a 30 percent market share would reduce a program’s revenuesby over 40 percent according to this analysis. Clearly, a 30 percent market share conveyssubstantial leverage.

B. Vertical Integration

The previous discussions of concentration and monopsony power deal with horizontalconcerns. Vertical integration between the segments of the industry may have an impact aswell. The ownership of programming by distributors has long been a source of concern in theTV network and cable TV industries.

Vertical integration by dominant firms may create a barrier to entry requiring entry attwo stages of production,65 or foreclosing critical inputs for competitors in downstreammarkets.66 Vertical arrangements may restrict the ability of downstream operators to respondto local market conditions.67 Vertical integration not only removes important potentialcompetitors across stages of production,68 but also may trigger a wave of integrative mergers,69

rendering small independents at any stage extremely vulnerable to a variety of attacks.70

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Complaints about many of these problems have been aired in media markets. Each ofthe major players is interconnected with at least one other of the major players through crossownership or joint ventures. Each of the major players has at least some cross-ownership orcontrol in more than one of the distribution technologies.

There is a long history of vertical leverage being exercised in the cable TV industry. Theintroduction gave recent examples of denial of access to the audience in both cable TV and highspeed Internet access. There is a long history of complaints about denial of access tosubscribers by integrated MSOs and preferential access for affiliated programming. Evidence ofthese problems is both qualitative and quantitative.71 The dominant, integrated firms get thebest deals. One problem comes from most favored nation clauses that large operators oftensecure from programmers. Such clauses are supposed to guarantee an MSO of getting as gooda price as any other operator, sometimes excluding Time Warner and TCI.72

Efforts to impose or obtain exclusive arrangements have become ever-presentcontroversies in the industry, including efforts to prevent competing technologies fromobtaining programming, as well as to prevent competition from developing within the cableindustry.73 Price discrimination against competitors and other strategies, such as placingprogramming of competitors at a disadvantageous position on the dial have also been evidentin recent years.74

Allegations of anti-competitive cable practices are not limited to industry critics. Thepractices within the industry became so bad that even major players became involved in formalprotests. Viacom and its affiliates, a group not interconnected significantly with the top twocabals in the industry, filed an antitrust lawsuit against the largest chain of affiliated competitorsin its New York territory. Ultimately, it sold its distribution business to its competitors.

The landscape of the cable industry is littered with examples of these anti-competitivepractices. These include, for example, exclusive deals with independents that freeze-outoverbuilders,75 refusals to deal for programming due to loopholes in the law requiring non-discriminatory access to programming,76 tying arrangements,77 and denial of access tofacilities.78

The problem forcing new entrant to raise huge sums of capital to enter these industriesis not hypothetical. It is a central part of the strategy of raising barriers to entry. AT&T/@Homestress the fact that Internet Service Providers who want access to broadband technologies willhave to make the investment in the transmission capacity.79

The manifestation of this vertical problem in the network TV industry can be found inthe relationship between affiliates and the networks, particularly as they have unfolded sincethe relaxation of rules governing ownership interests in programming and distribution.80

Networks have moved aggressively to branch out into programming, denying affiliatesindependent sources of programming.81 They maximize the value of that programming byleveraging their control over popular prime time programming to force affiliates to take allprime time programming and not pre-empt with local programming, requiring promotion andcarriage, in spite of making the same programs available to other outlets in the same market,as well as bundling less popular programs with flag ship offerings. 82 To leverage their vertical

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relations, the networks have created pooled news coverage, which is forced on affiliates, givenan advantage in delivery, and favorable lead-ins.83 They have attacked the financial base of theaffiliated stations by restricting the sale of the stations or negotiation of retransmission rightsand seizing digital signal rights.84 All of the key levers of market power made available throughvertical integration have been used to restrict both the availability of independent program andthe freedom of affiliated stations.85

V. DELIVERY OF VARIETY DOES NOT ENSURE DIVERSITY

Having called into question the vibrancy of competition within and across mediasegments, we also must note that even if there were vigorous competition, it would notnecessarily accomplish the public policy goal set out for the media.86 Economic competitionalone has never been the sole purpose of media policy.87 In fact, the unfettered pursuit ofprofit in media markets exhibits tendencies that are contrary to the public policy goals.

A. Diversity of Source and Excessive Influence

The extremely powerful commercial thrust of the new media reinforces the centralconcern of media public policy.88 Economic competition does not preclude the abuse of politicalinfluence over the media, nor does it ensure healthy competition of political interests. Theeconomic interests of media owners continues to influence their advertising, programmingchoices89 and how they provide access to political information90 as it always has, only on agrander scale.

New technologies do not alter the underlying economic relationships because the mass-market audience orientation of the business takes precedence and there is no reason to assumethat the emergence of a different medium, like the Internet will change behaviors of dominantfirms.91 Indeed, because the new media markets have moved quickly to vertical integration bydominant incumbents form the old media, the problems of raising capital and acquiring licensesthat have afflicted the old media persist.92

D. Diversity of Content

Empirical evidence clearly suggests that concentration in media markets has a negativeeffect on diversity.93 Greater concentration results in less diversity, while diversity of ownershipacross geographic, ethnic and gender lines is associated with diversity of programming. Thedictates of mass audiences create a largest market share/lowest common denominator ethicthat undercuts that ability to deliver diverse, locally-oriented,94 and public interestprogramming.95

The drive to sell more subscriptions and reach a broader, yet highly targeted audienceadvertising that caters to their individual tastes will be intense, resulting in a commercializationon a grander scale.96 The resulting T-commerce will be an electronic “direct mail on steroids”pumped up by the ability of viewers to click through digitally inserted advertising forpurchases.97 The high powered advertising will be targeted at demographically compatibleviewers identified by detailed information created by the two-way network on viewing patterns

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and past purchases, 98 leading to growing concerns that certain groups are not likely to have fairaccess to the opportunities of cyberspace.99 The new services may be expensive to deliverbecause of the cost of appliances, production equipment necessary to produce programmingthat takes advantage of the new appliance, and also because of the infrastructure necessary todeliver interactive services. 100 The cost of services, and the targeting of marketing points to acommercial model in which high-value, high-income consumers are the ones that marketersseek to woo.

Companies introducing technologies can identify the likely early adopters and innovatorsand orient their product distribution to maximize the penetration within that market segment. 101

There is a very strong base of support for the importance of income and education in theadoptions of high technology innovations like computers and telecommunications equipment.102

The strong predictors of inclination to early adoption point directly to market segmentationstrategies.103 In other words, companies introducing technologies can identify the likelyadopters and orient their product distribution to maximize the penetration within that marketsegment. The competitive energies of the industry are focused on the “premier” segment, withinnovative offerings and consumer-friendly pricing, while the remainder of the population isignored or suffers price increases. Minority or market segments are less well served.104 Policiesthat promote ownership and participation of underrepresented points of view are acounterbalance to this tendency. To put the matter simply, minority owners are more likely topresent minority points of view105 and females are more likely to present a female point ofview,106 in the speakers, formats and content they put forward.

“[A]lthough the modern video marketplace opens up more places for their wares, it alsogenerates pressures that limit receptivity to originality and controversy.”107 Simply put, theexistence of multiple outlets providing more examples of similar shows does not accomplish thegoal of providing greater diversity of points of view or different types of content.108

C. Public Interest and Local Programming

There is clear evidence that greater concentration will reduce public interest andculturally diverse programming109 as well as locally-oriented programming. 110 News and publicaffairs programming is particularly vulnerable to these economic pressures.111 As market forcesgrow, this programming is reduced.112 The quality of the programming is also compromised.113

Commercialization can easily overwhelm public interest and diverse content.114 The radioindustry, which has been subject to the most unfettered process of rationalization demonstratehow local content can be homogenized off the air.115 The growing impact of homogenization inthe TV industry stimulated by the lifting of national ownership limits and restrictions on verticalintegration into programming is also unmistakeable.116 Insertion of local programming isrestricted or eliminated. Stories of local importance are driven out of the high visibility hours oroff the air. Pooled news services reduce the ability of local stations to present local stories andeventually erode the capability of producing them.

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ENDNOTES

1 Stefik, Mark, The Internet Edge (Cambridge, MA, MIT Press, 1999), p. 12.

The ability of the Internet to cause action at a distance is akin to that of other communicationtechnologies – including smoke signals, drum talk, mail, newspapers, radio, television, and the telephone.It enormously magnifies the most powerful feature of technologies like radio and television: widedissemination of information. Its enormous fan-out allows an idea or an action originated at one locationto be sent instantaneously to thousands or millions of other sites. In addition, like the telephone, theInternet is interactive. Some have described Internet technology in terms of “push and pull.” Imagine aplayground full of kids playing tug-of-war with long ropes, pushing and pulling, yanking and shoving,creating interaction at a distance

2 Arthur, Brian, “Positive Feedbacks in the Economy,” Scientific America, February 1990 (hereafter Arthur), p. 92...93.

Conventional economic theory is built on the assumption of diminishing returns. Economic actionsengender a negative feedback that leads to a predictable equilibrium for prices and market shares. Suchfeedback tends to stabilize the economy because any major changes will be offset by the very reactionsthey generate…

The parts of the economy that are resource-based (agriculture, bulk goods production, mining) are still forthe most part subject to diminishing returns… The parts of the economy that are knowledge-based, on theother hand, are largely subject to increasing returns. Products such as computers, pharmaceuticals,missiles, aircraft, automobiles, software, telecommunications or fiber optics are complicated to design andmanufacture. They require large initial investments in research, development and tooling, but once salesbegin, incremental production is relatively cheap…

Increased production brings additional benefits: producing more units means gaining more experience inthe manufacturing process and achieving greater understanding of how to produce additional units evenmore cheaply. Moreover, experience gained with one product makes it easier to produce new productsincorporating similar or related technologies…

Gaines, Brian, R., “The Learning Curves Underlying Convergence,” Technological Forecasting and Social Change, 57:1998, p. 21.

This improvement depends on the capacity of silicon to support minute semiconductor logic circuits, butthis capacity could not have been fully exploited over nine orders of magnitude performance improvementwithout the use of the computer to support the design and fabrication of such circuits. This is oneexample of a positive feedback loop within the evolution of computers, that he computer industry hasachieved along a learning curve that is unique in its sustained exponential growth because each advancein computer technology has been able to support further advances in computer technology. Such positivefeedback is known to give rise to emergent phenomena in biology whereby systems exhibit major newphenomena in their behavior. The history of computing shows the emergence of major new industriesconcerned with activities that depend upon, and support, the basic circuit development, but that arequalitatively different in their conceptual frameworks and applications impacts from that development: forexample programming has led to a software industry, human-computer interaction has led to aninteractive applications industry, document representation has led to a desktop publication industry, andso on.

3 Simpson, Ida Harper, “Historical Patterns of Workplace Organization: From Mechanical to Electronic Control andBeyond,” Current Sociology, 47:1999; Evans, George, Seppo Honkapohja, and Paul Romer, “Growth Cycles,”American Economic Review, June 1998. For economic relationships from the labor side see Longworth, Richard C.,Global Squeeze (Chicago: Contemporary Books, 1998) (hereafter, Longworth) and from the business side seeWhitman, Marina v.N., New World, New Rules: The Changing Role of the American Corporation (Boston; HarvardBusiness School Press, 1999). Even Bluestone, Barry and Bennet Harrison – Growing Prosperity: The Battle forGrowth With Equity in the Twenty-first Century (New York, Houghton Mifflin, 2000) – who seek historical parallels toprevious technological revolutions finally acknowledge the uniqueness of the current transformation.4 Owen, Owen, Bruce M., The Internet Challenge to Television (Harvard University Press, Cambridge, MA, 1999), p.151.

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From the point of view of digital communication technology, “information” is a bitstream” of zeros andones, just like an old-fashioned dit/dah telegraph code. Digital technology works the same way regardlessof content. Anything that can be digitized can be transmitted on a digital medium to one and all. andvirtually any image can be digitized, including books, newspapers, paintings, movies, TV programs, music,personal conversations, speeches, political cartoons, brainwaves, and three-dimensional objects. Further,almost any current electronic communication medium is or can be made into a digital medium, includingtelephone systems, television broadcasting systems, cable television systems, and geosynchronouscommunication satellites. It is easy to see why convergence is a focal concept: everything seems headedin the digital direction very rapidly.

5 Wilkins, Karin Gwinn, “The Role of Media in Public Disengagement from Political Life,” Journal of Broadcasting andElectronic Media, 2000 (fall), p. 372.

Recent literature on political communities has suggested the importance of emerging computertechnologies, as a link between the government and the public, and as a bridge across constituents… maypromote democratic debate and participation. Even though these scholars admit that access to thischannel is restricted to an elite, they believe that computer technologies have the capacity to foster socialcapital and citizenship, as an interactive technology that may serve as an alternative to dominant mediasystems. One key factor that may differentiate this medium is its potential for interactivity, thus blurringtraditional boundaries between mediated and interpersonal communications.

6 The specific objective of the policy has been ill-defined and its measurement has been debated. For reviews thatcombine a discussion of definitions with empirical research see Napoli, Philip M., “Deconstructing the DiversityPrinciple,” Journal of Communication, 1999 (Autumn); “Rethinking Program Diversity Assessment: An Audience-Centered Approach,” The Journal of Media Economics, 1997 (10). In this paper we are concerned with diversity ofviews in the broad sense. Diversity of sources is assumed (and can be demonstrated empirically) to be related todiversity of points of view and the willingness to provide public interest and locally-oriented programming, which areassumed (and can be demonstrated empirically) to be related to diversity of ownership7 Shapiro, Andrew, The Control Revolution (New York: Century Foundation Books, 1999) (hereafter Shapiro); Cooper,Mark, “Open Access to the Broadband Internet: Technical and Economic Discrimination in Closed ProprietaryNetworks,” University of Colorado Law Review, Fall 2000.8 Rifkin, Jeremy, The Age of Access (New York: Tarcher, Putnam, 2000).9 Castells, Manuel, The Rise of the Network Society (Oxford: Blackwell, Oxford, 1996); Sanyal, Bish and DonaldSchon, “Information Technology and Urban Poverty: The Role of Public Policy,” in Donald A. Schon, Bish Sanyal, andWilliam J. Mitchell, High Technology and Low-Income Communicates (Cambridge, MIT Press, 1999), Cooper, Mark,“Inequality in Digital Society,” Cardozo Law Journal, forthcoming.10 Stempell, Guido H., III, Thomas Hargrove and Joseph P. Bernt, “Relation of Growth of Use of the Internet toChanges in Media Use from 1995 to 1999,” Journalism and Mass Communications Quarterly, 2000 (Spring), p. 77.

The Internet has arrived as a major mass medium, but it is not playing the role that many have assumed.The decline this survey showed in the use of both network and local TV news and newspaper and newmagazine use cannot be pinned on the Internet. Our comparison of users and non-users of the Internetshowed that the impact was not significant on both network and local news. It also showed that Internetusers were more likely to be newspaper readers and radio news listeners than non-Internet users were.

How do we explain this? Perhaps the best explanation is that those people who use the Internet as asource of news are clearly information seekers.

11 The concerns about political influence are both national (see, for example, Robert McChessney Rich Media,Poor Democracy: Communications Politics in Dubious Times (Urbana, Illinois: Illinois University Press, 1999)and international (see, for example, Dahl, Robert, “Can International Organizations be Democratic? A Skeptic’sView,” in Ian Shapiro and Casiano Hacker-Cordon, Democracy’s Edges (1999).12 Schiesel, Seth. “Charter Removes ESPNews From Some Cable Systems in Dispute.” New York Times, July 2, 2001.13 Hansell, Saul. “AOL-Time Warner Rivals Preparing for Interactive TV Fight.” New York Times, September 11, 2000.14 Goodman, Peter S., “AT&T Puts Open Access to a Test,” Washington Post, November 23, 2000

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AT&T says it has yet to formulate business models with partners, but the software the company hasdesigned for the Boulder trial – demonstrated at its headquarters in Englewood, Colo. Last week – clearlyincludes a menu that will allow customers to link directly to its partners. Company officials acknowledgethat AT&T’s network already has the ability to prioritize the flow of traffic.

But as a demonstration of the software last week made clear, AT&T’s logo will remain an immutable partof every screen, flanked by menus that beckon customers with links to web sites for local news andshopping – AT&T’s commercial partners, who will share revenues.

“We are not going to become invisible,” said Susan K. Marshall, senior vice president of data services atAT&T Broadband, who is overseeing the Boulder trial. “To get to the Internet, you have to do somethingwith that globe. It puts the brand in the customer’s mind… so that I have the ability to drive someadditional revenues.

Those savvy enough to navigate the system without instructions will be able to use familiar browsers suchas Microsoft’s Internet Explorer or Netscape. But AT&T’s software will encourage customers to use itsbrowser.

The reason for this subtle positioning is the value of owning the first screen… Thus, if AT&T’s flashing logoand its browser become – as the company hopes – vehicles to lure customers to sites run by its partners,the dollars it collects will come at the expense of ISPs that otherwise would have claimed the revenue.

15 Bagdakian, B, The Media Monopoly, 4th ed. (Beacon, Boston, 1992), p. 182, describes the economic and culturalimpact of television.16Gigi Sohn and Andrew Jay Schwartzman, "Broadcast Licensees and Localism: At Home in the 'CommunicationsRevolution,'" Federal Communications Law Journal, December 1994; M. Griffin, "Looking at TV News: Strategies forResearch," Communication, 1992.17 A.T. Kearney, Digital Television in a Digital Economy: Opportunities for Broadcasters (National Association ofBroadcasters, April 1998), Chapter 1, notes that “the advent of digital television will place broadcast stations in themidst of the digital economy.”18 Shapiro, p. 215,

The opportunity for truly open and effective community conversation will depend on whether our digitaltools are primed, in design and use, for online escapism and total filtering, or whether we balancepersonalization with other values, such as broad exposure, social awareness, and community strength. Ifwe fail to do so, the problem won’t just be that we are all occupying different chat rooms or readingdifferent news online. The insularity of cyber-experience could become the insularity of experience,period.

19 Mark N. Cooper And Christopher Murray, “Technology, Economics And Public Policy To Create An Open BroadbandInternet,” paper presented at The Policy Implications of End-to-End, Stanford Law School, December 1, 2000

20 Lessig, Lawrence, Code and Other Laws of Cyberspace New York: Pegasus, 1999), p. 205.

Now we are changing that architecture. We are enabling commerce in a way we did not before; we arecontemplating the regulation of encryption; we are facilitating identity and content control. We areremaking the values of the Net, and the question is: Can we commit ourselves to neutrality in thisreconstruction of the architecture of the Net?

I do not think that we can. Or should. Or will. We can no more stand neutral on the question of whetherthe Net should enable centralized control of speech than Americans could stand neutral on the question ofslavery in 1861. We should understand that we are part of a worldwide political battle; that we haveviews about what rights should be guaranteed to all humans, regardless of their nationality; and weshould be ready to press these views in this new political space opened up by the Net.

21 Kraus, S and D. Davis, The Effects of Mass Communications on Political Behavior (University Press, 1996). Tankel,Johnathan David and Wenmouth Williams, Jr., “The Economics of Contemporary Radio,” Media Economics: Theoryand Practice, 2nd ed., Alison Alexander, James Owers and Rod Carveth, Eds. (Lawrence Erlbaum Associates, 1998).

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22 This is how CEO Sumner Redstone is reported to have referred to Viacom/CBS, Communications Daily, December5, 2000 cited in Network Affiliated Stations Alliance, Petition for Inquiry Into Network Practices, March 8, 2001(hereafter Petition).23 Petition.24 Waterman, David and Michael Zhaoxu Yan, “Cable Advertising and the Future of Basic Cable Networking,” Journalof electronic Media and Broadcasting, 1999 (Fall); Survey evidence indicates that advertisers think cable andbroadcast are “substitutes” for each other, but the market shares do not (see Reid, Leonard N., Karen Whitehill King,“A Demand-Side View of Media Substitutability in National Advertising: A Study of Advertiser Opinions aboutTraditional Media Options,” Journalism & Mass Communication Quarterly, 2000 (77). ).

25 Federal Communications Commission, Pricing Analysis, February 2001. the study did find a weak subscriber effect.Even though satellite is not cross elastic on price, larger satellite subscribership does have a small effect in takingsubscribers away from cable. There is also evidence that satellite is much more effective where cable quality isweak. Neither of these observations is inconsistent with our argument that satellite is not sufficiently competitive todiscipline cable pricing.26 Mundy, Alicia, “The Price of Freedom,” MediaWeek, March 29, 1999, p. 32.

Congress has been moving at an unusual speed to pass a bill that would give DBS providers the right tobeam local network signals to local subscribers …

“It’s not a cure-all,” said Hartenstein, who has run DirectTV since its inception in 1990. For one thing,Hartenstein’s business plan is not based on beaming local network signals to his customer base, soonexpected to top 9 million. Instead, he is suggesting that subscribers buy new antennas to supplementtheir coverage. DirecTV is working with retailers to have the specialized antennas available at reducedprices. He calls this program “Distant/Terrestrial,” meaning he sends you all the cable and movie channelsyou could dream of (for which he can charge), and you pick up the free network feeds with an extraantenna.

Furthermore, Hartensteins’ game plan does not include fighting for cable customers by undercutting cableprices. Analysts for the DBS and cable industries have figures out that the average American homeownerwill cough up $30 per month for TV. Above that level, both camps believe, many consumers will bolt andrun. Hartenstein seems determined to compete on quality and depth of service, not price.

27 Boersma, Matthew, “The Battle for Better Bandwidth – Should Cable Networks be Open?,” ZDNet, July 11, 1999;Clausing, Jeri, “Satellite TV is Poised for New Growth,” New York Times, November 26, 1999, p. C-6

What is going to happen is every few months there is going to be a new development,” [Thomas Egan, acable and satellite analyst with PaineWebber in New York] said. I think what will happen is they will try tocompete less on price and try to compete more on services.

Mr. Egan said expected cable companies to focus their energy on high-speed Internet and new digitalservices, while satellite companies would be focusing on increased programming

28 Pub. L. 104-104, Conference Report, p. 148.29 Title II, part 5.30 Federal Communications Commission, Seventh Annual Report In the Matter of Annual Assessment of the Status ofCompetition in the Market for the Delivery of Video Programming, CS Docket No. 00-132, January 8, 2001.31 “Testimony of Thomas Wheeler, President of the National Cable Television Association, “ before the Subcommitteeon Communications of the Committee on Commerce, Science and Transportation, United States Senate, June 21,1989, pp. 4-5.32 James A. Ordover and Yale M. Braunstein, "Does Cable Television Really Face Effective Competition?,” Testimonyof William B. Finneran, Chairman New York State Commission on Cable Television," in Competitive Issues in the

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Cable Television Industry, Subcommittee on Antitrust, Monopolies and Business Rights, Committee on the Judiciary,United States Congress, March 17, 1988, at 561.33 Stempell, Hargrove and Bernt, p. 75 present the results of a unique longitudinal study that allowed for carefulelaboration of research findings. They emphatically reject the notion that the Internet is stealing attention fromother media.

Our finding seem consistent with the speculation from many quarters that the Internet has taken peopleaway form other media. However, [it], tells a different story. Almost exactly half of our sample indicatedthey are using the Internet at least once a week, so we compared use of other media by those who usethe Internet and those who do not. Users and non-users of the Internet both used network TV news toabout the same extent. Those who use the Internet were slightly less likely to use local TV news, but thedifference was not statistically significant. Those who use the Internet were more likely than those whodon’t use it to be regular newspaper readers and regular radio news listeners. So the Internet is notstealing readers from newspapers or listeners from radio.

34 It can be argued that before the advent of TV, radio occupied this product space (see Tankel and Williams).35 Stempel, Hargrove and Bernt, p. 78.

Clearly an information seeking device helps explain the greater newspaper use by Internet users, and thisinformation-seeking behavior may run two ways. Internet users may turn to their newspapers ornewspaper readers may go to the Internet for more information on a given topic. Either is possiblesequentially as a supplemental information-seeking behavior. What is at least not practical is going fromeither the Internet or the newspaper to TV news to seek additional information on a given topic. TV newsis not organized in a way that makes this practical or even possible in many cases.

36 This discussion is based on Nielson ratings for May and June 2001.37 Nowak, Glen J., Glen T. Cameron, Dean M. Krugman, “How Local Advertisers Choose and Use Advertising Media,”Journal of Advertising Research, 1993 (Nov/Dec), find that targeting is the critical factor for local advertising. Wheninteractive video media develop an effective targeting approach, an issue that is receiving significant attention, itcould infringe more on the local revenue stream of radio and newspapers. The failure of the Internet to develop thatlocal focus may account for the slow growth of advertising revenue garnered by that medium.38 Busterna, John, “The Cross Elasticity of Demand for National Newspaper Advertising,” Journalism Quarterly, 1987(64); Sentman, Mary Alice, “When the Newspaper Closes,” Journalism Quarterly, 1986 (63)39 Reid and King.40 Johnson, Thomas J., Mahmoud A.M. Braima, Jayanthi Sothirajah, “Measure for Measure: The Relationship BetweenDifferent Broadcast Types, Formats, Measures and Political Behaviors and Cognitions,” Journal of Broadcasting &Electronic Media, 2000 (44), p. 45. See also, Chaffee S. H. and S. Frank, “How Americans Get Their PoliticalInformation: Print versus Broadcast News,” The Annals of the American Academy of Political and Social Science, 1996(546).41 Stempell, Hargrove and Bernt, pp. 77, point out that the different demand may enable radio to continue its roleeven as the new media expand.

Information seeks can listen to the radio while they are using the Internet. Obviously, they are not goingto be paying full attention to both, but one involves seeing and the other involves listening, so both can beused at the same time.

42 Brown, Allan, “Public Service Broadcasting in Four Countries: Overview,” The Journal of Media Economics, 1996(9); Moy, Patricia and Dietram A. Scheufele, “Media Effects on Political and Social Trust,” Journalism and MassCommunications Quarterly, 2000 (77), pp. 746…751.

The general trend of effects is one in which reliance on television news leads to lower levels of trust ingovernment, while newspaper reading results in higher levels of trust…

While the mass media have been blamed for diminishing levels of trust among the citizenry, we haveshown that it is crucial to distinguish not only between types of media, but also between types of trust.Our analysis shows that use of different types of media has different effects on political and social trust.

26

43 Albarran, Alan B. and John W. Dimmick, “An Assessment of Utility and Competitive Superiority of in the VideoEntertainment Industries,” Journal of Media Economics, 1993 (6); Bennett, W. Lance, Regina G. Lawrence, “NewsIcons and the Mainstreaming of Social Change,” Journal of Communication, 1995 (45); McLeod, Douglas M.,“Communicating Deviance: The Effects of Television News Coverage of Social Protests,” Journal of Broadcasting &Electronic Media, 1995 (39); Dimmick, John, B. “The Theory of the Niche and Spending on Mass Media: The Case ofthe Video Revolution,” Journal of Media Economics, 1997 (10); Sparks, Glenn G., Marianne Pellechia, Chris Irvine,“Does Television News About UFOs Affect Viewers’ UFO Beliefs?: An Experimental Investigation,” CommunicationQuarterly, 1998 (46); Walma Van Der Molen, Juliette H., Tom H. A. Van Der Voort, “The Impact of Television, Print,and Audio on Children’s Recall of the News,” Human Communication Research, 2001 (26).44 Wilkins, Karin Gwinn, “The Role of Media in Public Disengagement from Political Life,” Journal of Broadcasting &Electronic Media, 2000 (44).45 Sinclair, Jon, R., “Reforming Television’s Role in American Political Campaigns: Rationale for the Elimination of PaidPolitical Advertisements,” Communications and the Law, March 1995.46 Cornfield, Michael, “What is Historic About Television?”, Journal of Communications, 1994 (21), pp. 110-111.47 Coulson, David C. and Stephen Lacy, “Newspapers and Joint Operating Agreements,” in Contemporary MediaIssues (E. David Sloan and Emily Erickson Hoff, Eds.) (Vision Press, Northport: 1998) Lacy, Stephen, David C.Coulson, Charles St. Cyr, “The Impact of Beat Competition on City Hall Coverage,” Journalism & Mass CommunicationQuarterly, 1999 (76).48 Clarke, Pere and Eric Fredin, “Newspapers, Television and Political Reasoning,” Public Opinion Quarterly, 1978(summer); Robinson, John P. and Mark R. Levy, “New Media Use and the Informed Public: A 1990s Update,” Journalof Communications, 1996 (spring).49 The role of radio talk shows is the new development. Johnson, Thomas J., Mahmoud A.M. Braima, JayanthiSothirajah, “Doing the Traditional Media Sidestep: Comparing Effects of the Internet and Other Nontraditional Mediawith Traditional Media in the 1996 Presidential Campaign,” Journalism & Mass Communication Quarterly, 1999 (76),find that nontraditional media do not have an impact on a variety of measures of knowledge and perceptions aboutthe 1996 presidential campaign and to the extent they do, it was specifically radio talk shows, influencing views ofClinton negatively (see also Moy, Patricia, Michael Pfau, LeeAnn Kahlor, “Media Use and Public Confidence inDemocratic Institutions,” Journal of Broadcasting & Electronic Media, 1999 (43)).50 Berkowitz, D. and D. Pritchard, “Political Knowledge and Communication Resources,” Journalism Quarterly, 1989(66); Chaffee, S. H. and X. Zhao and G. Leshner, “Political Knowledge and the Campaign Media of 1992,”Communications Research, 1994 (21); D Drew and D. Weaver, “Voter Learning in the 1988 Presidential Election: Didthe Media Matter?” Journalism Quarterly, 1991 (68).51 Johnson, Braima and Sothirajah, 2000, juxtapose the earlier finding of a lack of influence for radio with morerecent findings that radio talk shows have an impact. See also, Johnson, Braima and Sothirajah, 1999, and Stamm,K., M Johnson and B. Martin, “Differences Among Newspapers, Television and Radio in their Contribution toKnowledge of the Contract with America,” Journalism and Mass Communications Quarterly, 1997 (74).52 U.S. Department of Justice, Merger Guidelines, revised 1997.53 Shepherd, William, G., The Economics of Industrial Organization (Prentice Hall, Engelwood Cliffs, N.J., 1997,Fourth edition), p. 389, gives the following formulas for the Herfindahl-Hirschman Index (HHI) and the ConcentrationRatio (CR):

n 2

H = Si

i=1 i

m

CR = Si

m i = 1

27

where

n = the number of firms

m= the market share of the largest firms (4 for the 4 firm concentration ratio)

Si = the share of the ith firm.

54 Shepherd, p. 4.55 Horizontal Merger Guidelines, at section 0.1. Lawrence Sullivan and Warren S. Grimes, The Law of Antitrust: AnIntegrated Handbook, Hornbook Series (West Group, St. Paul, 2000), pp. 596-597, describe the DOJ approach asfollows:

The coordination that can produce adverse effects can be either tacit or express. And such coordinationneed not be unlawful in and of itself. According to the 1992 Guidelines, to coordinate successfully, firmsmust

(1) reach terms of interaction that are profitable to the firms involved and

(2) be able to detect and punish deviations. The conditions likely to facilitate these two elements arediscussed separately, although they frequently overlap.

In discussing how firms might reach terms for profitable coordination, the Guidelines avoid using the term"agreement," probably because no agreement or conspiracy within the meaning of Section 1 of theSherman Act is necessary for the profitable interaction to occur. As examples of such profitablecoordination, the Guidelines list "common price, fixed price differentials, stable market shares, or customeror territorial restrictions." Sometimes the facilitating device may be as simple as a tradition or conventionin an industry.

The go on to not the mechanisms that might be used and the usefulness of the HHI index in thisregard.

Oligopoly conditions may or may not require collusion that would independently violate Section 1 of theSherman Act. A supracompetitive price level may be maintained through price leadership (usually theleader is the largest firm), through observance of a well-established trade rule (e.g., a convention of a 50percent markup in price among competing retailers), or through strategic discipline of nonconformingmembers of the industry…

To the extent that one or very few members of a concentrated industry have much higher market sharesthan other members, the opportunities for strategic disciplining may expand… The expanded ability of thelarger firm to coerce price discipline is reflected in the Herfindahl-Hirschman Index (HHI), which will assigna high concentration index to an industry with a very large participant. An industry with the same numberof participants, each of them roughly equal in size, will have a lower index.

56 Cooper, Mark, N., “Antitrust as Consumer Protection in the New Economy: Lessons from the Microsoft Case,”Hasting Law Journal, 2001 (April), reviews the evidence.57 A Leading or dominant firm proviso was included in the 1982 Merger Guidelines but was subsequently dropped.Shepherd talks about firms with a 50 percent or more market share as leading firm and source of concern.58 Jupiter Research, Online Media Consolidation Offers No Argument for Media Deregulation, 2001.59 U.S. Department of Justice, Merger Guideline, Issued April 2, 1992, revised, April 8, 1997, at Section 0.1.60 Id.,61 Merger Guidelines, Section 2.22.62 Peter Asch, Industrial Organization and Antitrust Policy (John Wiley, New York; 1983), Chapter 14.63 In re Toys “R” Us, Inc., FTC No. 9278 (October 13, 1998).

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64 Waterman, David and Michael Zhaoxu Yan, “Cable Advertising and the Future of Basic Cable Networking,” Journalof Broadcasting and Electronic Media 1999 (43), p. 645.65 Scherer, F. M. and David Ross, Industrial Market Structure and Economic Performance (Boston, Houghton Mifflin:1990, Third edition), p. 526, formulate the issue as follows “To avoid these hazards, firms entering either of themarkets in question might feel compelled to enter both, increasing the amount of capital investment required forentry.66 Shepherd, pp. 289-290, describes this issue as follows:

When all production at a level of an industry is “in-house,” no market at all exists from which independentfirms can buy inputs. If they face impediments or delays in setting up a new supplier, competition attheir level will be reduced. The clearest form of this is the rise in capital a new entrant needs to set up atboth levels.

Ores, special locations, or other indispensable inputs may be held by the integrated firm and withheldfrom others. The integration prevents the inputs from being offered in a market, and so outsiders areexcluded. A rational integrated firm might choose to sell them at a sufficiently high price.

67 Shepherd, p. 294, argues that integration by large firms creates this problem. Restrictions may be set on areas,prices or other dimension … Only when they are done by small-share firms may competition be increased. Whendone by leading firms with market shares above 20 percent, the restrictions do reduce competition.68 Perry, martin K., “Vertical Integration: Determinants and Effects,” Richard Schmalensee and Robert D. Willig,Handbook of Industrial Organization (Amsterdam, North Holland: 1989), p. 197.

Potential competition may be important for some markets. If one such potential entrant merges with afirm already inside the market, the ranks of actual plus potential competitors are reduced by one. Unlessthe entrant is in a vertical relation, the conglomerate reduces the total degree of competitive constraint,even if only slightly.

In addition, [Bain] pointed out that vertical merger also eliminated one of the most natural potentialentrants into each stage. Indeed, these two theories are complements. It is difficult to argue that firmsin neighboring stages are the most likely entrants without also believing that entry at both stages is moredifficult than entry at one stage.

69 Perry, p. 247.

The first firms to integrate into neighboring stages reduce the number of alternative sources for otherfirms at either stage. This “thinning” of the market can increase the costs of market or contractualexchange. Subsequent integration by other firms then becomes more likely.

70 Scherer and Ross, pp. 526-527.

It is possible that business firms undertake vertical integration mergers not to enhance the level ofmonopoly power at some stage, but to redistribute it. Oligopolies often settle down into behavioralpatterns in which price competition atrophies, even though some or all sellers suffer from excess capacity.Non-price rivalry then becomes crucial to the distribution of sales. One form of nonprice competition isthe acquisition of downstream enterprises which, all else (such as prices) being equal, will purchase fromtheir upstream affiliates. If acquisition of this sort deflects significant amounts of sales, disadvantagedrivals are apt to acquire other potential customers in self-defense, and reciprocal fear of foreclosureprecipitates a bandwagon effect in which the remaining independent downstream enterprises arefeverishly sought.

Shepherd, p. 290.

Triggering: If there are 10 nonintegrated firms and only one of them integrates, then little affecton competition might occur. But if this action induces the other 9 to do the same, the ultimateimpact of the first “triggering” move may be large. Any increase in market power is magnified.

71 Ahn, Hoekyun and Barry R. Litman, “Vertical Integration and Consumer Welfare in the Cable Industry,” Journal ofBroadcasting and Electronic Media, 41.

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72 McAdams, John M. Higgins, “Hangover from Takeovers,” Broadcasting & Cable, April 19, 1999.73 HBO, a subsidiary of Time, played a key role in the effort to prevent TVRO operators from obtaining programming(see Chan-Olmsted, op. cit., at 11), and the effort to sell overbuild insurance (Competitive Issues in the CableTelevision on Industry, Subcommittee on Antitrust, Monopolies and Business Rights, Committee on the Judiciary,United States Congress, March 17, 1988, at 127, 152-174. The recent efforts to impose exclusive arrangementshave raised numerous complaints from potential competitors (see for example "Statement of William Reddersen onBehalf of Bell South Enterprises (hereafter, Bell South)," and "Testimony of Deborah L. Lenart on Behalf of Ameritech(hereafter, Ameritech)," Subcommittee on Telecommunications, Trade and Consumer Protection, Committee onCommerce, U.S. House of Representatives, July 29, 1997.74 Competitive Issues in the Cable Television Industry, Subcommittee on Antitrust, Monopolies and Business Rights,Committee on the Judiciary, United States Congress, March 17, 1988. More recently, for example, The Time Warner-Turner merger as originally proposed included preferential treatment for TCI (see "Separate Statement of ChairmanPitofsky and Commissioners Steiger and Varney," In the Matter of Time Warner, File No. 961-0004. Efforts toexclude non-affiliated programs have also been in evidence, as Viacom's most popular programming (MTV) has beenbumped.75 Bell South (p. 4) cites examples of suspected exclusive arrangements involving Eye on People, MSNBC, Viacom,and Fox, as does Ameritech (p. 7).76 The loophole will be terrestrial transmission to regional clusters, thereby avoiding the requirement to provide non-discriminatory access to satellite delivered programming. Bell South gives examples of Comcast in Philadelphia andTime Warner in Orlando (p. 5). Ameritech cites Cablevision in New York (p. 8).77 Bell South gives examples including NBC/CNBC, Scripps Howard/Home and Garden (p. 5).78Testimony of Michael J. Mahoney on Behalf of C-TEC Corporation Subcommittee on Telecommunications, Trade andConsumer Protection, Committee on Commerce, U.S. House of Representatives, July 29, 1997.79 McWilliams Brian, “Prodigy Stumps for Access to Cable,” Internet News.com, July 23, 1999.

Medin said if Prodigy and other ISPs don’t like the current situation, instead of running to regulators forhelp, they should get behind DSL, or wireless or satellite access. Or, if they’re so keen on cable, saidMedin, they should string their own wires, or “overbuild” as it’s called in the cable industry.

80 Herskowitz, Marc L., “The Repeal of the Financial Interest and Syndication Rules: The Demise of Program Diversityand Television Network Competition?,” Cardozo Arts and Entertainment Law Journal, 1997 (15); Petition.81 Hershkowitz, pp. 111-12. See also Napoli, Deconstructing.82 Petition, pp. 8-12.83 Petition, pp. 23 –28.84 Petition, pp. 8-12, 15-18.85 Waterman, David, “CBS-Viacom and the Effects of Media Merger: An Economic Perspective,” dismisses the threatof vertical leverage while admitting that it is extensive in this case. He concedes that Fox “favors” its ownprogramming, but argues that even though the other networks self-deal, they also allow other programs on and sellto non-network stations. He fails to consider how much market is available outside of the vertically integrated TVnetworks. Others have pointed out that what is left may not be enough to support an unintegrated market(Hershkowitz).86 Berry, Steven T., Joel Waldfogel, “Public Radio in the United States: Does it Correct Market Failure or CannibalizeCommercial Stations?,” Journal of Public Economics, 1999 (71), point out free entry may not accomplish theeconomic goals set out for it either. There is evidence of the anticompetitive behaviors expected to be associatedwith reductions in competition, such as price increases and excess profits M. O. Wirth, "The Effects of MarketStructure on Television News Pricing," Journal of Broadcasting, 1984; J. Simon, W. J. Primeaux, and E. Rice, "ThePrice Effects of Monopoly Ownership in Newspapers," Antitrust Bulletin, 1986; R. Rubinovitz (Market Power and PriceIncreases for Basic Cable Service Since Deregulation, (Economic Analysis Regulatory Group, Department of Justice,August 6, 1991); B. J. Bates, "Station Trafficking in Radio: The Impact of Deregulation," Journal of Broadcasting andElectronic Media, 1993.

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87 W.B. Ray, "FCC: The Ups and Downs of Radio-TV Regulation (Iowa: Iowa State University Press, 19900; Hopkins,Wat W., “The Supreme Court Defines the Marketplace of Ideas,” Journalism and Mass Communications Quarterly,Spring 1996; C. M. Firestone and J. M. Schement, Toward an Information Bill of Rights and Responsibilities (AspenInstitute, Washington, D.C., 1995), Duncan H. Brown,” The Academy’s Response To The Call For A MarketplaceApproach To Broadcast Regulation,” 11 CRITICAL STUDIES IN MASS COMMUNICATION 257 (1994); Yochai Benkler, “Free AsThe Air To Common Use: First Amendment Constraints On Enclosure Of The Public Domain,” 74 N.Y.U. L. REV. 354(1999).88 Firestone and Schement, p. 45; Stempell, Guido H. III, and Thomas Hargrove, “Mass Media Audiences in aChanging Media Environment,” Journalism and Mass Communications Quarterly, Autumn 1996; Gunther, Albert C.“The Persuasive Press Inference: Effects of Mass Media on Perceived Public Opinion,” Communications Research,October 1998; American Civil Liberties Union v. Janet Reno, 929 F. Supp. 824 (E.D. Pa. 1996), 117 S.Ct. 2329(1997); Iosifides, Petros, “Diversity versus Concentration in the Deregulated Mass Media Domain,” Journalism & MassCommunication Quarterly, 1999 (76).89 Bazelon, pp. 230-231.90 W. L. Bennet, News, The Politics of Illusion ((New York: Longmans, 1988); J. C. Busterna, "Television OwnershipEffects on Programming and Idea Diversity: Baseline Data," Journal of Media Economics, 1988; E. S. Edwards and N.Chomsky, Manufacturing Consent (New York: Pantheon, 1988); J. Katz, "Memo to Local News Directors," ColumbiaJournalism Review, 1990; J. McManus, "Local News: Not a Pretty Picture," Columbia Journalism Review, 1990; J.McManus, "How Objective is Local Television News?", Mass Communications Review, 1991; Price, Monroe, E., “PublicBroadcasting and the Crisis of Corporate Governance,” Cardozo Arts & Entertainment, 17, 1999.91 K. C. Loudon, "Promise versus Performances of Cable," in W.H. Dutton, et al., Wired Cities: Shaping the Future ofCommunications (Boston, K.G. Hall, 1987). D. Le Duc, Beyond Broadcasting ((New York: Longman, 1987); T.Streeter, "The Cable Fable Revisited; Discourse, Policy, and the Making of Cable Television," Critical Studies in MassCommunications, 1987; B. Winston, "Rejecting the Jehovah's Witness Gambit," Intermedia, 1990; N. M. Sine, et al.,"Current Issues in Cable Television: A Re-balancing to Protect the Consumer," Cardozo Arts & Entertainment LawJournal, 1990; V. E. Ferrall, "The Impact of Television Deregulation," Journal of Communications, 1992; R. H. Wicksand M. Kern, "Factors Influencing Decisions by Local Television News Directors to Develop New Reporting StrategiesDuring the 1992 Political Campaign,” Communications Research, 1995; Motta Massimo and Michele Polo,“Concentration and Public Policies in the Broadcasting Industry,” Lubunski, Richard, “The First Amendment at theCrossroads: Free Expression and New Media Technology,” Communications Law and Policy, Spring 1997; Chan-Olmsted, Sylvia M., Jung Suk Park, “From On-Air to Online World: Examining the Content and Structures of BroadcastTV Stations’ Web Sites,” Journalism & Mass Communication Quarterly, 2000 (77).92 Civil Rights Forum on Communications Policy, When Being No. 1 is Not Enough: The Impact of AdvertisingPractices on Minority-Owned and Minority Formatted Broadcast Stations (1999), asserts a bias in advertising rates.Bradford, William D., “Discrimination in Capital Markets, Broadcast/Wireless Spectrum Service Providers and AuctionOutcomes,” School of Business Administration (Univ. of Washington), December 5, 2000, asserts a bias in capitalmarkets.

93 H. J. Levin, "Program Duplication, Diversity, and Effective Viewer Choices: Some Empirical Findings," AmericanEconomic Review, 1971; S. Lacy, "A Model of Demand for News: Impact of Competition on Newspaper Content,"Journalism Quarterly, 1989. T. J. Johnson and W. Wanta, "Newspaper Circulation and Message Diversity in an UrbanMarket," Mass Communications Review, 1993; W. R. Davie and J.S. Lee, "Television News Technology: Do MoreSources Mean Less Diversity,” Journal of Broadcasting and Electronic Media, 1993, p. 455; W. Wanta and T. J.Johnson, "Content Changes in the St. Louis Post-dispatch During Different Market Situations," Journal of MediaEconomics, 1994; D. C. Coulson, "Impact of Ownership on Newspaper Quality," Journalism Quarterly, 1994; D. C.Coulson and Anne Hansen, "The Louisville Courier-Journal's News Content After Purchase by Gannet," Journalism andMass Communications Quarterly, 1995; Iosifides, Petros, “Diversity versus Concentration in the Deregulated MassMedia,” Journalism and Mass Communications Quarterly, Spring 1999.94 Slattrey, Karen L. Ernest A. Hakanen and Mark Doremus, “The Expression of Localism: Local TV news Coverage inthe New Video Marketplace,” Journal of Broadcasting & electronic Media, 40, 1996; Carroll, Raymond L. and C.A.Tuggle, “The World Outside: Local TV News Treatment of Imported News,” Journalism and Mass CommunicationsQuarterly, Spring 1997; Fairchild, Charles, “Deterritorializing Radio: Deregulation and the Continuing Triumph of theCorporatist Perspective in the USA,” Media, Culture & Society, 1999 (21).

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95 Bagdikian, pp. 182... 188; p. Clarke and E. Fredin, "Newspapers, Television, and Political Reasoning," PublicOpinion Quarterly, 1978; M. Pfau, "A Channel Approach to Television Influence," Journal of Broadcasting andElectronic Media, 1990; D. T. Cundy, "Political Commercials and Candidate Image,” in New Perspectives in PoliticalAdvertising (L. L Kai, et. al, Eds.); G. J. O'Keefe, "Political Malaise and Reliance on the Media," Journalism Quarterly,1980; S. Becker and H. C. Choi, "Media Use, Issue/Image Discrimination," Communications Research, 1987; J. P.Robinson and D. K. Davis, "Television News and the Informed Public: An Information Process Approach," Journal ofCommunication, 1990; Voakes, Paul S. Jack Kapfer, David Kurpius and David Shano-yeon Chern, “Diversity in theNews: A Conceptual and Methodological Framework,” Journalism and Mass Communications Quarterly, Autumn,1996.96 Morgan Stanley Dean Whitter Reynolds, Digital Decade (New York, 1999).97 Van Orden, Bob, “Top Five Interactive Digital-TV Applications,” Multichannel News, June 21, 1999, p. 143,Kearney, Chapter 4.98 Menezes, Bill, “Replay, TiVo Get Cash for Consumer Push,” Multichannel News, April 5, 1999, p. 4899 Cooper, Inequality.100The cost of early HDTV equipment has been exorbitant and current prices in the range of $2,000-$4,000 “Profilewith Bob Wright: The Agony Before the Ecstasy of Digital TV,” Digital Television, April 1999, p. 40; Maxwell, Kim.Residential Broadband: An Insider’s Guide to the Battle for the Last Mile (John Wile: New York: 1999); pp. 9-10.101 Sakar, Jayati, “Technological Diffusion: Alternative Theories and Historical Evidence,” Journal of EconomicSurveys, 12:2, 1998; Martinez, Evan, Yolanda Polo and Carlos Flavian, “The Acceptance and Diffusion of NewConsumer Durables: Differences Between First and Last Adopters,” Journal of Consumer Marketing, 15:4, 19998.102 Meeks, Carol B., Anne L. Sweaney, “Consumer’s Willingness to Innovate: Ownership of Microwaves, Computersand Entertainment Products,” Journal of Consumer Studies and Home Economics, 16, 1992; Savage, Scott GaryMadden and Michael Simpson, “Broadband Delivery of Educational Services: A Study of Subscription Intentions inAustralian Provincial Centers,” Journal of Media Economics, 10:1, 1997; Atkin, David J., Leo W. Jeffres and KimberlyA. Neuendorf, “Understanding Internet Adoption as Telecommunications Behavior,” Journal of Broadcasting andElectronic Media, 42:4, 1998; Neuendorf, Kimbelry A., David Atkin and Leo W. Jeffres, “Understanding Adopters ofAudio Information Innovations,” Journal of Broadcasting and Electronic Media, 42:4, 1998; Lin, Carolyn, A.,“Exploring Personal Computer Adoption Dynamics,” Journal of Broadcasting and Electronic Media, 42:4, 1998.103 Sultan, Fareena, “Consumer Preferences for Forthcoming Innovations: The Case of High Definition Television,”Journal of Consumer Marketing, 16: 1999, p. 37.104 Waldfogel, Joel, Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated ProductMarkets, 2000, p. 20.

Radio programming preferences differ sharply between black and whites between Hispanics and non-Hispanics, and (to a lesser extent) across age groups. Additional consumers bring forth additionalproducts, but in this market the products brought forth are valuable almost exclusively to members oftheir own groups. This is an interesting finding, among other reasons, because it gives a non-discriminatory reason why markets will deliver fewer products – and one might infer, lower utility – to“preference minorities,” small groups of individuals with atypical preferences.

Is this an important effect in the economy, or a curious feature of radio markets?… The fundamentalconditions needed to product compartmentalized preference externalities are large fixed costs andpreferences that differ sharply across groups of consumers. These conditions are likely to hold, to greateror lesser extents, in a variety of media markets – newspapers, magazines, television, and movies

105 Empirical studies demonstrating the link between minority presence in the media and minority-orientedprogramming include the following M. Fife, The Impact of Minority Ownership on Broadcast Program Content: A CaseStudy of WGPR-TV's Local News Content (Washington, D. C., National Association of Broadcasters), 1979); M. Fife,The Impact of Minority Ownership on Broadcast Program Content: A Multi-Market Study (Washington, D. C., NationalAssociation of Broadcasters), 1986); Congressional Research Service, Minority Broadcast Station Ownership andBroadcast Programming: Is There a Nexus? (Washington, D.C., Library of Congress), 1988; T. A. Hart, Jr., "The Casefor Minority Broadcast Ownership," Gannet Center Journal, 1988; K. A. Wimmer, "Deregulation and the Future ofPluralism in the Mass Media: The Prospects for Positive Policy Reform," Mass Communications Review, 1988; Evans,

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Akousa Barthewell, “Are Minority Preferences Necessary? Another Look at the Radio Broadcasting Industry,” Yale Lawand Policy Review, 1990 (8); Dubin, Jeff and Matthew L. Spitzer, “Testing Minority Preferences in Broadcasting,”Southern California Law Review, 1995 (68); Bachen, Christine, Allen Hammond and Laurie Mason, and StephanieCraft, Diversity of Programming in the Broadcast Spectrum: Is there a Link Between Owner Race or Ethnicity andNews and Public Affairs Programming?, Santa Clara University, December 1999); Mason, Laurie, Christine M. Bachen,Stephanie L. Craft, “Support for FCC Minority Ownership Policy: How Broadcast Station Owner Race or EthnicityAffects News and Public Affairs Programming Diversity,” Comm. L. Pol’Y, 2001 (6).106 A similar line of empirical research dealing with gender exists, see Lacy, Stephen, Mary Alice Shaver, and CharlesSt. Cyr, “The Effects of Public Ownership and Newspaper Competition on the Financial Performance of NewspaperCorporation: A Replication and Extension,” Journalism and Mass Communications Quarterly, Summer 1996; T. G.,Gauger, "The Constitutionality of the FCC's Use of Race and Sex in Granting Broadcast Licenses," Northwestern LawReview, 1989; H. Klieman, "Content Diversity and the FCC's Minority and Gender Licensing Policies," Journal ofBroadcasting and Electronic Media, 1991; L. A. Collins-Jarvis, "Gender Representation in an Electronic City Hall:Female Adoption of Santa Monica's PEN System," Journal of Broadcasting and Electronic Media, 1993; Lauzen,Martha M. and David Dozier, “Making a Difference in Prime Time: Women on Screen and Behind the Scenes in 1995-1996 Television season, Journal of Broadcasting and Electronic Media, 1999 (winter.); O’Sullivan, Patrick B., “TheNexus Between Broadcast Licensing Gender Preferences and Programming Diversity: What Does the Social ScientificEvidence Say?” Department of Communication, Santa Barbara, CA. (2000).107 Blumer, Jay G. and Carolyn Martin Spicer, “Prospects for Creativity in the New Television Marketplace: Evidenceform Program-Makers,” Journal of Communications, 1990 (40), p. 78.108 Evidence that increasing variety does not increase diversity can be found in the U.S. (see A. S. Dejong and B. J.Bates, "Channel Diversity in Cable Television," Journal of Broadcasting and Electronic Media, 1991; A. E. Grant, "ThePromise Fulfilled? An Empirical Analysis of Program Diversity on Television," The Journal of Media Economics, 1994;Hellman, Heikki and Martii Soramaki, “Competition and Content in the U.S. Video Market,” Journal of MediaEconomics, 1994 (7); Lin, C.A., “Diversity of Network Prime-Time Program Formats During the 1980s,” Journal ofMedia Economics, 1995 (8); Kubey, Robert, Mark Shifflet, Niranjala Weerakkody, and Stephen Ukeiley, “DemographicDiversity on Cable: Have the New Cable Channels Made a Difference in the Representation of Gender, Race, andAge?”, Journal of Broadcasting and Electronic Media, 1995 (39)) as well as other nations (see Deakin, Simon,Stephen Pratten, “Reinventing the Market? Competition and Regulatory Change in Broadcasting,” Journal of Law andSociety, 1999 (26); Li, Hairong, Janice L. Bukovac, “Cognitive Impact of Banner Ad Characteristics: an ExperimentalStudy,” Journalism & Mass Communication Quarterly, 1999 (76); Kilborn, Richard W., “Shaping the Real,” EuropeanJournal of Communication, 1998 (13).109 V. A. Stone, "Deregulation Felt Mainly in Large-Market Radio and Independent TV," Communicator, April, 1987, p.12; P. Aufderheide, "After the Fairness doctrine: Controversial Broadcast Programming and the Public Interest,”Journal of communication (1990), pp. 50-51; M. L. McKean and V. A. Stone, "Why Stations Don't Do News,”Communicator, 1991, pp. 23-24; V. A. Stone, "New Staffs Change Little in Radio, Take Cuts in Major Markets TV,RNDA, 1988; K. L. Slattery and E. A. Kakanen, "Sensationalism Versus Public Affairs Content of Local TV News:Pennsylvania Revisited," Journal of Broadcasting and Electronic Media, 1994; J. M. Bernstein and S. Lacy, "ContextualCoverage of Government by Local Television News," Journalism Quarterly, 1992; R. L. Carrol, "Market Size and TVNews Values," Journalism Quarterly, 1989; D. K. Scott and R. H. Gopbetz, "Hard News/Soft News Content of theNational Broadcast Networks: 1972-1987," Journalism Quarterly, 1992; Washburn, op. cit, p. 75; Ferrall, pp. 21...28... 30.110 Kathryn Olson, "Exploiting the Tension between the New Media's "Objective" and Adversarial Roles: The RoleImbalance Attach and its Use of the Implied Audience, Communications Quarterly 42: 1, 1994 (pp. 40-41); A. G.Stavitsky, "The Changing Conception of Localism in U.S. Public Radio," Journal of Broadcasting and Electronic Media,1994.111 J. H. McManus, "What Kind of a Commodity is News?", Communications Research, 1992; Olson, op. cit.112 Bagdakian, pp. 220-221; D. L. Paletz and R. M. Entmen, Media, Power, Politics, (New York, Free Press, 1981). N.Postman, Amusing Ourselves to Death: Public Discourse in the Age of Show Business (New York Penguin Press,1985); S. Lacy, "The Financial Commitment Approaches to News Media Competition," Journal of Media Economics,1992.

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113 B. R. Litman, "The Television Networks, Competition and Program Diversity," Journal of Broadcasting, 1979; B. R.Litman and J. Bridges, "An Economic Analysis of Daily Newspaper Performance," Newspaper Research Journal, 1986;J. C. Buterna, "Television Station Ownership Effects on Programming and Idea Diversity: Baseline Data," Journal ofMedia Economics, 1988; J. Kwitny, "The High Cost of High Profits," Washington Journalism Review, 1990; A. Powers,"Competition, Conduct, and Ratings in Local Television News: Applying the Industrial Organization Model," Journal ofMedia Economics, 1993.114 Rifkin, pp. 7-9.

More and more cutting edge-commerce in the future will involve the marketing of a vast array of culturalexperiences rather than of traditional industrial-based goods and services…

While the industrial era was characterized by the commodification of work, the Age of Access is about,above all else, the commodification of play – namely the marketing of cultural resources including rituals,the arts, festivals, social movements, spiritual and fraternal activities, and civic engagement in the form ofpaid-for personal entertainment…

Imagine a world where virtually every activity outside the confines of family relations is a paid-forexperience, a world in which traditional obligations and expectations – mediated by feelings of faith,empathy, and solidarity – are replaced by contractual relations in the form of paid memberships,subscriptions, admission charges, retainers and fees

115 Fairchild, pp. 557-559,

News programming, especially local news, which has always been the most expensive kind ofprogramming to produce, has been rationalized almost out of existence, with a significant amount ofcentralization and heavy reliance on national wire services and increased use of ‘information management’services of public relations companies…

In Washington DC, for example, consolidation has led to one news production team providing identicalnew to 10 stations form a central location, personalizing each station’s news break with their call letters…Staff can choose which pieces of news they will include in their own newscasts, but have no control overnews content and given the economic realities created and fostered by deregulation, few may actuallyhave the means to make these choices…

It is a fairly straightforward concept: a computer system allows the station to download programmingminutes or even days in advance… All possible functions of a radio station, defined in advance, arecovered by one of 99 preset computer command. ‘Any station joining the network ‘can expect to cutoperating costs by 30 to 50 percent.’ The advantage of the network,’ writes one business reporter, ‘is thatthe station need not worry about selecting the music, the programming staple of most stations on thenetwork. ‘Pelmorax uses programming consultant to tailor the music and Decima Research to ensure thatits formats reach the right demographics.

116 Network Affiliated Stations Alliance, “Petition for Inquiry into Network Practices.” (Federal CommunicationsCommission, Mar. 8, 2001).